10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FEDERAL HOME LOAN BANK OF ATLANTA

(Exact name of registrant as specified in its charter)

Federally chartered corporation	56-6000442
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1475 Peachtree Street, NE, Atlanta, Ga.	30309
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (404) 888-8000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

¨  Large accelerated filer    ¨  Accelerated filer     x  Non-accelerated filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

	Shares outstanding as of October 31, 2006
Class B Stock, par value $100	61,175,356

Table of Contents

PART I. FINANCIAL INFORMATION		2
Item 1.	FINANCIAL STATEMENTS	2
	STATEMENTS OF CONDITION	2
	STATEMENTS OF INCOME	3
	STATEMENTS OF CAPITAL	4
	STATEMENTS OF CASH FLOWS	5
	NOTES TO FINANCIAL STATEMENTS	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	51
PART II. OTHER INFORMATION		53
Item 1.	Legal Proceedings	53
Item 1A.	Risk Factors	53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3.	Defaults Upon Senior Securities	53
Item 4.	Submission of Matters to a Vote of Security Holders	53
Item 5.	Other Information	53
Item 6.	Exhibits	53
SIGNATURES		54

1

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF CONDITION

(Unaudited)

(In thousands, except par value)

	September 30, 2006		December 31, 2005
ASSETS
Cash and due from banks	$	18,764	$	13,345
Interest-bearing deposits (includes deposits with other FHLBanks of $5,000 at September 30, 2006 and December 31, 2005)		660,814		254,321
Federal funds sold		13,580,000		13,028,500
Trading securities (includes $873,896 and $1,266,335 pledged as collateral at September 30, 2006 and December 31, 2005, respectively, that may be repledged and other FHLBanks’ bonds of $281,832 and $288,731 at September 30, 2006 and December 31, 2005, respectively)		4,580,840		5,260,321
Held-to-maturity securities, net (fair value of $19,142,310 and $19,250,998 at September 30, 2006 and December 31, 2005, respectively)		19,501,103		19,628,496
Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans of $672 and $557 at September 30, 2006 and December 31, 2005, respectively		3,050,706		2,859,982
Advances, net		101,631,218		101,285,012
Accrued interest receivable		652,014		621,448
Premises and equipment, net		29,928		31,019
Derivative assets		247,494		162,492
Other assets		96,828		93,952
TOTAL ASSETS	$	144,049,709	$	143,238,888
LIABILITIES AND CAPITAL
Deposits
Interest-bearing	$	4,744,226	$	5,191,340
Noninterest-bearing		13,124		43,534
Total deposits		4,757,350		5,234,874
Securities sold under agreements to repurchase		500,000		500,000
Consolidated obligations, net:
Discount notes		4,917,473		9,579,425
Bonds		125,184,906		119,174,663
Total consolidated obligations, net		130,102,379		128,754,088
Mandatorily redeemable capital stock		121,763		143,096
Accrued interest payable		1,215,274		1,067,352
Affordable Housing Program		123,043		105,911
Payable to REFCORP		27,745		20,766
Derivative liabilities		712,502		1,223,382
Other liabilities		162,836		107,847
Total liabilities		137,722,892		137,157,316
Commitments and contingencies (Note 13)
CAPITAL
Capital stock Class B putable ($100 par value) issued and outstanding shares: 59,277 shares and 57,532 shares at September 30, 2006 and December 31, 2005, respectively		5,927,657		5,753,203
Retained earnings		399,160		328,369
Total capital		6,326,817		6,081,572
TOTAL LIABILITIES AND CAPITAL	$	144,049,709	$	143,238,888

The accompanying notes are an integral part of these financial statements.

2

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF INCOME

(Unaudited)

(In thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
INTEREST INCOME
Advances	$	1,421,413		$	951,712		$	3,824,018		$	2,384,456
Prepayment fees on advances, net		55			230			955			1,558
Interest-bearing deposits		10,326			9,290			25,806			26,061
Federal funds sold		152,952			68,639			377,260			155,260
Trading securities		67,762			79,555			216,145			238,691
Held-to-maturity securities		235,663			215,850			693,320			619,169
Mortgage loans held for portfolio		39,293			33,921			112,723			96,039
Loans to other FHLBanks		68			95			98			199
Total interest income		1,927,532			1,359,292			5,250,325			3,521,433
INTEREST EXPENSE
Consolidated obligations:
Discount notes		89,826			80,371			268,801			172,862
Bonds		1,603,096			1,068,646			4,299,264			2,749,371
Deposits		55,698			42,290			160,061			104,518
Borrowings from other FHLBanks		45			—			68			33
Securities sold under agreements to repurchase		6,292			7,720			17,177			24,165
Mandatorily redeemable capital stock		1,904			2,044			5,721			7,652
Other borrowings		284			59			538			125
Total interest expense		1,757,145			1,201,130			4,751,630			3,058,726
NET INTEREST INCOME BEFORE MORTGAGE LOAN LOSS PROVISION		170,387			158,162			498,695			462,707
Provision for credit losses on mortgage loans held for portfolio		178			4			115			229
NET INTEREST INCOME AFTER MORTGAGE LOAN LOSS PROVISION		170,209			158,158			498,580			462,478
OTHER INCOME (LOSS)
Service fees		565			755			1,741			2,138
Net gain (loss) on trading securities		98,661			(144,823	)		(81,251	)		(149,788	)
Net (loss) gain on derivatives and hedging activities		(92,542	)		112,295			90,879			79,871
Other		30			304			472			1,252
Total other income (loss)		6,714			(31,469	)		11,841			(66,527	)
OTHER EXPENSE
Operating		23,319			17,906			66,149			55,816
Finance Board		1,272			1,195			3,815			3,585
Office of Finance		677			785			2,041			2,048
Other		388			687			2,531			1,958
Total other expenses		25,656			20,573			74,536			63,407
INCOME BEFORE ASSESSMENTS		151,267			106,116			435,885			332,544
Affordable Housing Program		12,543			8,871			36,166			27,927
REFCORP		27,741			19,447			79,945			60,923
Total assessments		40,284			28,318			116,111			88,850
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		110,983			77,798			319,774			243,694
Cumulative effect of change in accounting principle		—			—			—			(2,905	)
NET INCOME	$	110,983		$	77,798		$	319,774		$	240,789

The accompanying notes are an integral part of these financial statements.

3

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF CAPITAL

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005

(Unaudited)

(In thousands)

	Capital Stock Class B Putable					Retained Earnings			Total Capital
	Shares		Par Value
BALANCE, DECEMBER 31, 2004	52,252		$	5,225,149		$	216,640		$	5,441,789
Proceeds from issuance of capital stock	31,956			3,195,571			—			3,195,571
Repurchase/redemption of capital stock	(25,794	)		(2,579,439	)		—			(2,579,439	)
Net shares reclassified to mandatorily redeemable capital stock	(500	)		(49,952	)		—			(49,952	)
Net income	—			—			240,789			240,789
Cash dividends on capital stock	—			—			(165,668	)		(165,668	)
BALANCE, SEPTEMBER 30, 2005	57,914		$	5,791,329		$	291,761		$	6,083,090
BALANCE, DECEMBER 31, 2005	57,532		$	5,753,203		$	328,369		$	6,081,572
Proceeds from issuance of capital stock	30,596			3,059,623			—			3,059,623
Repurchase/redemption of capital stock	(28,836	)		(2,883,639	)		—			(2,883,639	)
Net shares reclassified to mandatorily redeemable capital stock	(15	)		(1,530	)		—			(1,530	)
Net income	—			—			319,774			319,774
Cash dividends on capital stock	—			—			(248,983	)		(248,983	)
BALANCE, SEPTEMBER 30, 2006	59,277		$	5,927,657		$	399,160		$	6,326,817

The accompanying notes are an integral part of these financial statements.

4

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine Months Ended September 30,
	2006			2005
OPERATING ACTIVITIES
Net income	$	319,774		$	240,789
Cumulative effect of change in accounting principle		—			2,905
Income before cumulative effect of change in accounting principle		319,774			243,694
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization:
Net premiums and discounts on consolidated obligations		20,356			30,710
Net premiums and discounts on investments		(1,917	)		7,314
Net premiums and discounts on mortgage loans		(181	)		426
Concessions on consolidated obligation bonds		22,227			23,940
Net deferred loss on interest-rate exchange agreements		272			627
Premises and equipment		1,706			1,633
Capitalized software		3,250			1,837
Provision for credit losses on mortgage loans held for portfolio		115			229
Gain on disposal of premise and equipment		(2	)		—
Decrease in trading securities		683,355			165,788
Gain due to change in net fair value adjustment on derivative and hedging activities		(90,138	)		(184,299	)
Increase in accrued interest receivable (excluding derivative accrued interest)		(30,566	)		(34,956	)
Increase in other assets		(6,248	)		(16,891	)
Net increase in Affordable Housing Program (AHP)		21,940			14,660
Increase in accrued interest payable (excluding derivative accrued interest)		147,922			146,066
Increase in payable to REFCORP		6,979			5,481
Increase in other liabilities		32,327			407,146
Total adjustments		811,397			569,711
Net cash provided by operating activities		1,131,171			813,405
INVESTING ACTIVITIES
Net (increase) decrease in interest-bearing deposits		(406,493	)		193,264
Net (increase) decrease in Federal funds sold		(551,500	)		1,661,000
Purchases of held-to-maturity securities		(2,944,611	)		(5,986,552	)
Proceeds from maturities of held-to-maturity securities		3,070,047			3,500,411
Principal collected on advances		132,377,334			102,759,258
Advances made		(132,802,318	)		(112,354,332	)
Principal collected on mortgage loans held for portfolio		237,835			389,332
Purchased mortgage loans held for portfolio		(428,599	)		(932,190	)
Net decrease in deposits placed with FHLBanks for mortgage loan programs		—			1,382
Purchase of premises and equipment		(613	)		(2,477	)
Purchase of software		(1,190	)		(2,370	)
Net cash used in investing activities		(1,450,108	)		(10,773,274	)

The accompanying notes are an integral part of these financial statements.

5

	Nine Months Ended September 30,
	2006			2005
FINANCING ACTIVITIES
Net (decrease) increase in deposits		(477,524	)		332,774
Net decrease in securities sold under agreements to repurchase		—			(500,000	)
Proceeds from issuance of consolidated obligations:
Discount notes		354,926,926			281,608,630
Bonds		39,735,263			41,421,710
Bonds transferred from other FHLBanks		67,518			220,948
Payments for debt issuance costs		(21,706	)		(24,814	)
Payments for repurchase/maturing and retiring consolidated obligations:
Discount notes		(359,592,484	)		(286,537,733	)
Bonds		(34,240,465	)		(26,931,340	)
Proceeds from issuance of capital stock		3,059,623			3,195,571
Repurchase/redemption of capital stock		(2,883,639	)		(2,579,439	)
Repurchase/redemption of mandatorily redeemable capital stock		(22,863	)		(70,474	)
Cash dividends paid		(226,293	)		(169,302	)
Net cash provided by financing activities		324,356			9,966,531
Net increase in cash and cash equivalents		5,419			6,662
Cash and cash equivalents at beginning of the year		13,345			8,395
Cash and cash equivalents at end of the year	$	18,764		$	15,057
Supplemental disclosures of cash flow information:
Cash paid for:
Interest paid	$	4,295,480		$	2,721,046
AHP payments, net	$	19,034		$	14,044
REFCORP payments	$	72,966		$	55,441
Noncash items:
Dividends declared but not paid	$	89,428		$	47,662
Net shares reclassified to mandatorily redeemable capital stock	$	1,530		$	49,952

The accompanying notes are an integral part of these financial statements.

6

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 1– Basis of Presentation

The financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). To prepare the financial statements in conformity with GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and income and expenses during the reporting period. Actual results could be different from these estimates. The foregoing interim financial statements are unaudited; however, in the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the results for the interim periods, have been included. The results of operations for interim periods are not necessarily indicative of results to be expected for the year ending December 31, 2006, or for other interim periods. The unaudited interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2005, which are contained in the Bank’s amended registration statement on Form 10 filed with the Securities and Exchange Commission (“SEC”) on May 12, 2006.

Descriptions of the significant accounting policies of the Federal Home Loan Bank of Atlanta (the “Bank”) are included in Note 1 to the 2005 audited financial statements. There have been no significant changes to these policies as of September 30, 2006.

Certain reclassifications have been made in the prior-year financial statements to conform to current presentation.

Note 2– Recently Issued Accounting Standards

In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 155, Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements Nos. 133 and 140 (“SFAS 155”). SFAS 155 (a) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, (b) clarifies that certain instruments are not subject to the requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), (c) establishes a requirement to evaluate interests in securitized financial assets to identify interests that may contain an embedded derivative requiring bifurcation, (d) clarifies what may be an embedded derivative for certain concentrations of credit risk, and (e) amends SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities (“SFAS 140”), to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006, and may be applied on an instrument-by-instrument basis. The Bank adopted SFAS 155 effective January 1, 2006; however, the Bank has not elected to use the fair value option on any transactions either prior to or after January 1, 2006. Thus, the adoption of the standard did not affect the financial condition or results of operations of the Bank.

7

On September 30, 2005, the FASB issued Derivatives Implementation Group (“DIG”) Issue B38, Evaluation of Net Settlement with Respect to the Settlement of a Debt Instrument through Exercise of an Embedded Put Option or Call Option and DIG Issue B39, Application of Paragraph 13(b) to Call Options That Are Exercisable Only by the Debtor. DIG Issue B38 addresses an application issue when applying SFAS 133, paragraph 12(c), to a put option or call option (including a prepayment option) embedded in a debt instrument. DIG Issue B39 addresses the conditions in SFAS 133, paragraph 13(b) as they relate to whether an embedded call option in a hybrid instrument containing a host contract is clearly and closely related to the host contract if the right to accelerate the settlement of debt is exercisable only by the debtor. DIG Issues B38 and B39 become effective for periods beginning after December 15, 2005. The Bank adopted DIG Issues B38 and B39 effective January 1, 2006 with no material effect on its results of operations or financial condition.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets-An Amendment of FASB Statement No. 140 (“SFAS 156”). SFAS 156 requires that all separately recognized servicing assets and servicing liabilities be measured initially at fair value, if practicable. SFAS 156 permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. SFAS 156 is effective as of the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Bank does not expect SFAS 156 to have a material effect on its results of operations or financial condition at the time of adoption. The Bank intends to adopt SFAS 156 as of January 1, 2007.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under SFAS 157, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early adoption permitted. The Bank has not yet determined the effect, if any, that the implementation of SFAS 157 will have on its results of operations or financial condition. The Bank intends to adopt SFAS 157 as of January 1, 2008.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). SAB 108 provides interpretive guidance regarding the appropriate treatment of the carryover or reversal of prior year misstatements in assessing the materiality of a current year misstatement. The SEC staff believes that registrants should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. SAB 108 is effective for fiscal years ending on or after November 15, 2006, with early application encouraged. The Bank does not expect SAB 108 to have a material effect on its results of operations or financial condition at the time of adoption. The Bank intends to adopt SAB 108 as of December 31, 2006.

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (“SFAS 158”). SFAS 158 requires an employer to recognize on its balance sheet an asset or liability equal to the overfunded or underfunded benefit obligation (projected benefit obligation for pensions and accumulated postretirement benefit obligation for other postretirement benefits) of each defined benefit pension and other postretirement plan, other than a multiemployer plan. The resulting balance sheet adjustment, which will be recorded annually absent an interim

8

remeasurement, is offset by a corresponding adjustment to accumulated other comprehensive income. Amounts recognized in accumulated other comprehensive income, including the gains or losses, prior service costs or credits, and any transition asset or obligation that has not yet been amortized as a component of net periodic benefit cost, are adjusted as they are subsequently recognized as components of net periodic benefit cost. Net periodic benefit cost will continue to be measured and recognized as in the past. SFAS 158 also eliminates the ability to use an early measurement date for defined benefit plan assets and obligations. Under SFAS 158, defined benefit plan assets and obligations will be measured as of the date of the employer’s fiscal year-end statement of financial position, with limited exceptions. The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective as of the end of the fiscal year ending after December 15, 2006, for entities with publicly traded equity securities, and at the end of the fiscal year ending after June 15, 2007, for all other entities. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of position is effective for fiscal years ending after December 15, 2008. The Bank does not believe that the effect of the implementation of SFAS 158 will be material. The Bank intends to adopt SFAS 158 as of December 31, 2006.

Note 3—Trading Securities

Major Security Types. Trading securities were as follows (in thousands):

	As of September 30, 2006		As of December 31, 2005
Government-sponsored enterprises debt obligations	$	4,239,067	$	4,910,858
Other FHLBanks’ bonds		281,832		288,731
State or local housing agency obligations		59,941		60,732
Total	$	4,580,840	$	5,260,321

Net gain (loss) on trading securities was as follows (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2006		2005			2006			2005
Net realized loss	$	—	$	—		$	(68,532	)	$	—
Net unrealized gain (loss)		98,661		(144,823	)		(12,719	)		(149,788	)
Net gain (loss) on trading securities	$	98,661	$	(144,823	)	$	(81,251	)	$	(149,788	)

9

Other Federal Home Loan Banks’ (“FHLBanks”) Consolidated Obligation Bonds. The following table details the Bank’s investment in other FHLBanks’ consolidated obligation bonds by primary obligor (in thousands):

	As of September 30, 2006		As of December 31, 2005
Other FHLBanks’ bonds:
FHLBank Dallas	$	83,713	$	85,079
FHLBank Chicago		67,749		71,874
		151,462		156,953
FHLBank TAP Program*		130,370		131,778
Total	$	281,832	$	288,731

* Under this program, the FHLBanks can offer debt obligations representing aggregations of smaller bond issues into larger bond issues that may have greater market liquidity. Because of the aggregation of smaller issues, there is more than one primary obligor.

Note 4—Held-to-maturity Securities

Major Security Types. Held-to-maturity securities were as follows (in thousands):

	As of September 30, 2006								As of December 31, 2005
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
State or local housing agency obligations	$	114,007	$	1,958	$	904	$	115,061	$	111,757	$	2,437	$	—	$	114,194
Government-sponsored enterprises debt obligations		—		—		—		—		899,650		150		—		899,800
Mortgage-backed securities:
U.S. agency obligations-guaranteed		70,424		1,214		—		71,638		88,908		702		—		89,610
Government-sponsored enterprises		2,240,544		1,270		82,718		2,159,096		2,508,719		3,244		79,837		2,432,126
Other		17,076,128		19,862		299,475		16,796,515		16,019,462		2,274		306,468		15,715,268
Total	$	19,501,103	$	24,304	$	383,097	$	19,142,310	$	19,628,496	$	8,807	$	386,305	$	19,250,998

10

A summary of the mortgage-backed securities issued by members or affiliates of members follows (in thousands):

	As of September 30, 2006								As of December 31, 2005
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Bank of America Corporation, Charlotte, N.C.	$	2,497,640	$	3,375	$	43,410	$	2,457,605	$	2,496,130	$	—	$	50,622	$	2,445,508
Citigroup Inc., New York, N.Y. N.Y.		33,429		10		474		32,965		43,159		15		432		42,742
Countrywide Financial Corporation, Calabasas, C.A.		4,762,389		3,627		85,508		4,680,508		4,863,070		1,443		83,282		4,781,231
Total	$	7,293,458	$	7,012	$	129,392	$	7,171,078	$	7,402,359	$	1,458	$	134,336	$	7,269,481

The following tables summarize the held-to-maturity securities with unrealized losses (in thousands). The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

	As of September 30, 2006
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
State or local housing agency obligations	$	29,221	$	904	$	—	$	—	$	29,221	$	904
Mortgage-backed securities:
Government-sponsored enterprises		2,118,677		82,718		—		—		2,118,677		82,718
Other		12,763,521		292,000		341,922		7,475		13,105,443		299,475
Total	$	14,911,419	$	375,622	$	341,922	$	7,475	$	15,253,341	$	383,097
	As of December 31, 2005
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Mortgage-backed securities:
Government-sponsored enterprises	$	356,696	$	6,724	$	1,998,336	$	73,113	$	2,355,032	$	79,837
Other		8,317,732		139,811		6,405,205		166,657		14,722,937		306,468
Total	$	8,674,428	$	146,535	$	8,403,541	$	239,770	$	17,077,969	$	386,305

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The Bank reviewed its held-to-maturity investments and has determined that all unrealized losses reflected above are temporary and related to increases in interest rates. Based on the creditworthiness of the issuers and the underlying collateral, no recognition of impairment is considered necessary. Additionally, the Bank has the ability and the intent to hold such investments to maturity, at which time it will recover the unrealized losses.

Redemption Terms. The amortized cost and estimated fair value of held-to-maturity securities by contractual maturity are shown below (in thousands). Expected maturities of some securities and mortgage-backed securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

	As of September 30, 2006				As of December 31, 2005
Year of maturity :	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	6,215	$	6,102	$	904,395	$	904,569
Due after one year through five years		54,050		53,660		46,495		46,937
Due after five years through ten years		9,005		9,445		9,625		10,291
Due after ten years		44,737		45,854		50,892		52,197
		114,007		115,061		1,011,407		1,013,994
Mortgage-backed securities		19,387,096		19,027,249		18,617,089		18,237,004
Total	$	19,501,103	$	19,142,310	$	19,628,496	$	19,250,998

The amortized cost of the Bank’s mortgage-backed securities classified as held-to-maturity includes a net discount of $20.1 million and a net premium of $21.1 million as of September 30, 2006 and December 31, 2005, respectively.

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Interest-rate Payment Terms. The following table details interest-rate payment terms for investment securities classified as held-to-maturity (in thousands):

	As of September 30, 2006		As of December 31, 2005
Amortized cost of held-to-maturity securities other than mortgage- backed securities:
Fixed-rate	$	114,007	$	111,757
Variable-rate		—		899,650
		114,007		1,011,407
Amortized cost of held-to-maturity mortgage-backed securities:
Pass through securities:
Fixed-rate		2,243,581		2,512,355
Variable-rate		64,880		82,085
Collateralized mortgage obligations:
Fixed-rate		5,621,216		6,276,150
Variable-rate		11,457,419		9,746,499
		19,387,096		18,617,089
Total	$	19,501,103	$	19,628,496

Note 5—Advances

Redemption Terms. The Bank had advances outstanding, as summarized below (dollar amounts in thousands):

	As of September 30, 2006					As of December 31, 2005
Year of original maturity :	Amount			Weighted Average Interest Rate %		Amount			Weighted Average Interest Rate %
Overdrawn demand deposit accounts	$	1,677				$	1,822
Due in 1 year or less		33,157,925		5.01	%		25,476,395		4.09	%
Due after 1 year through 2 years		22,121,526		4.95	%		18,959,799		3.99	%
Due after 2 years through 3 years		7,741,045		4.86	%		15,804,435		4.29	%
Due after 3 years through 4 years		9,025,906		4.52	%		8,330,278		4.13	%
Due after 4 years through 5 years		7,093,335		5.23	%		8,457,016		4.68	%
Due after 5 years		22,927,240		4.25	%		24,613,925		4.12	%
Total par value		102,068,654		4.79	%		101,643,670		4.16	%
Discount on AHP advances		(13,213	)				(11,592	)
Discount on advances		(11,774	)				(8,587	)
SFAS 133 hedging adjustments		(412,449	)				(338,479	)
Total	$	101,631,218				$	101,285,012

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The following table summarizes advances by year of original maturity or next call date for callable advances (in thousands):

Year of original maturity or next call date :	As of September 30, 2006
Overdrawn demand deposit accounts	$	1,677
Due in 1 year or less		33,161,925
Due after 1 year through 2 years		22,117,526
Due after 2 years through 3 years		7,741,045
Due after 3 years through 4 years		9,025,906
Due after 4 years through 5 years		7,093,335
Due after 5 years		22,927,240
Total par value	$	102,068,654

The following table summarizes advances by year of original maturity or next put date for putable advances (in thousands):

Year of original maturity or next put date :	As of September 30, 2006
Overdrawn demand deposit accounts	$	1,677
Due in 1 year or less		44,803,590
Due after 1 year through 2 years		26,264,901
Due after 2 years through 3 years		10,372,120
Due after 3 years through 4 years		8,529,296
Due after 4 years through 5 years		5,970,760
Due after 5 years		6,126,310
Total par value	$	102,068,654

The Bank has never experienced any credit losses on advances to a member. The Bank has policies and procedures in place to manage the credit risk on advances. Based on the collateral pledged as security for advances, management’s credit analysis of members’ financial condition, and prior repayment history, no allowance for losses on advances is deemed necessary by management. No advance was past due as of September 30, 2006 and December 31, 2005.

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Interest-rate Payment Terms. The following table details interest-rate payment terms for advances (in thousands):

	As of September 30, 2006		As of December 31, 2005
Par value of advances:
Fixed-rate	$	41,045,459	$	44,015,407
Variable-rate		61,021,518		57,626,441
Total	$	102,066,977	$	101,641,848

Note 6—Affordable Housing Program (“AHP”) and Resolution Funding Corporation (“REFCORP”) Liabilities

The following table provides roll-forward information with respect to changes in the AHP liability (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Balances, beginning of period	$	116,693		$	95,283		$	105,911		$	86,338
AHP assessments		12,543			8,871			36,166			27,927
Subsidy usage, net		(6,193	)		(3,933	)		(19,034	)		(14,044	)
Balances, end of period	$	123,043		$	100,221		$	123,043		$	100,221

The following table provides roll-forward information with respect to changes in the REFCORP liability (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Balances, beginning of period	$	26,824		$	11,419		$	20,766		$	8,700
Assessments		27,741			19,447			79,945			60,923
Payments during the period		(26,820	)		(16,684	)		(72,966	)		(55,441	)
Balances, end of period	$	27,745		$	14,182		$	27,745		$	14,182

Note 7—Mortgage Loans Held for Portfolio

Both the Mortgage Partnership Finance^® (MPF^®) Program and the Mortgage Purchase Program (“MPP”) involve investment by the Bank in mortgage loans that are purchased directly from participating financial institutions (“PFIs”). The total dollar amount of loans represents held-for-portfolio loans under both programs whereby the PFIs service and credit enhance home mortgage loans that they sell to the Bank.

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The following table presents information on mortgage loans held for portfolio (in thousands):

	As of September 30, 2006			As of December 31, 2005
Mortgage loans held for portfolio:
Fixed medium-term* single-family mortgages	$	1,078,814		$	1,160,989
Fixed long-term single-family mortgages		1,953,091			1,677,588
Multifamily mortgages		24,173			24,488
Total par value		3,056,078			2,863,065
Premiums		14,857			16,366
Discounts		(18,617	)		(18,058	)
Deferred loan costs, net		(2	)		(2	)
SFAS 133 adjustments		(938	)		(832	)
Total	$	3,051,378		$	2,860,539

* Medium-term is defined as a term of 15 years or less.

The following table details the par value of mortgage loans held for portfolio outstanding (in thousands):

	As of September 30, 2006		As of December 31, 2005
Government-insured loans	$	94,783	$	84,961
Conventional loans		2,961,295		2,778,104
Total par value	$	3,056,078	$	2,863,065

Residential mortgage loans included in large groups of smaller-balance homogenous loans are evaluated collectively for impairment. The allowance for credit losses attributed to these loans is established through a process that estimates the probable losses inherent in the Bank’s mortgage loan portfolio as of the balance sheet date. Mortgage loans, other than those included in large groups of smaller-balance homogeneous loans, are considered impaired when, based on current information and events, management determines that it is probable that the Bank will be unable to collect all principal and interest amounts due according to the contractual terms of the mortgage loan agreement. As of September 30, 2006 and December 31, 2005, the Bank had no recorded investments in impaired mortgage loans.

The activity in the allowances for credit losses was as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2006		2005		2006		2005
Balance, beginning of period	$	494	$	896	$	557	$	671
Provision for credit losses		178		4		115		229
Balance, end of period	$	672	$	900	$	672	$	900

As of September 30, 2006 and December 31, 2005, the Bank had $1.6 million and $1.7 million of nonaccrual loans, respectively.

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Note 8—Deposits

The following table details interest-bearing deposits (in thousands):

	As of September 30, 2006		As of December 31, 2005
Interest-bearing deposits:
Demand and overnight	$	4,602,093	$	5,071,500
Term		17,025		42,775
Other		125,108		77,065
Total	$	4,744,226	$	5,191,340

The Bank acts as a pass-through correspondent for member institutions required to deposit reserves with the Federal Reserve Banks. The amount of pass-through reserves deposited with Federal Reserve Banks was approximately $13.1 million and $43.5 million as of September 30, 2006 and December 31, 2005, respectively. The Bank includes member reserve balances in “noninterest-bearing deposits” on the Statements of Condition.

Note 9—Consolidated Obligations

Consolidated obligations, consisting of consolidated obligation bonds and discount notes, are the joint and several obligations of the FHLBanks and are backed only by the financial resources of the 12 FHLBanks. The FHLBanks issue consolidated obligations through the Office of Finance as their agent. In connection with each debt issuance, each FHLBank specifies the amount of debt it wants issued on its behalf. The Office of Finance tracks the amount of debt issued on behalf of each FHLBank. In addition, the Bank separately tracks and records as a liability its specific portion of consolidated obligations for which it is the primary obligor. The Finance Board and the U.S. Secretary of the Treasury have oversight over the issuance of FHLBank debt through the Office of Finance. Consolidated obligation bonds are issued primarily to raise intermediate and long-term funds for the FHLBanks and are not subject to any statutory or regulatory limits on maturity. Consolidated obligation discount notes are issued primarily to raise short-term funds. These notes sell at less than their face amounts and are redeemed at par value when they mature.

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Redemption Terms. The following is a summary of the Bank’s participation in consolidated obligation bonds outstanding, by year of original maturity (dollar amounts in thousands):

	As of September 30, 2006					As of December 31, 2005
Year of original maturity:	Amount			Weighted Average Interest Rate %		Amount			Weighted Average Interest Rate %
Due in 1 year or less	$	42,690,400		4.23	%	$	37,132,015		3.27	%
Due after 1 year through 2 years		33,523,880		4.49	%		27,428,115		3.72	%
Due after 2 years through 3 years		15,763,915		4.42	%		20,336,465		3.93	%
Due after 3 years through 4 years		9,099,805		4.33	%		10,694,175		3.86	%
Due after 4 years through 5 years		5,730,600		4.98	%		8,239,745		4.35	%
Due after 5 years		19,535,650		4.84	%		16,947,700		4.35	%
Total par value		126,344,250		4.46	%		120,778,215		3.76	%
Bond premiums		29,265					43,866
Bond discounts		(435,844	)				(442,253	)
SFAS 133 hedging adjustments		(751,323	)				(1,203,451	)
Deferred net losses on terminated interest-rate exchange agreements		(1,442	)				(1,714	)
Total	$	125,184,906				$	119,174,663

The Bank’s consolidated obligation bonds outstanding included (in thousands):

	As of September 30, 2006		As of December 31, 2005
Par value of consolidated bonds:
Noncallable	$	42,001,225	$	40,332,290
Callable		84,343,025		80,445,925
Total	$	126,344,250	$	120,778,215

The following table summarizes consolidated obligation bonds outstanding, by year of original maturity or next call date (in thousands):

Year of original maturity or next call date:	As of September 30, 2006
Due in 1 year or less	$	90,441,925
Due after 1 year through 2 years		18,143,955
Due after 2 years through 3 years		7,720,165
Due after 3 years through 4 years		3,275,805
Due after 4 years through 5 years		1,852,900
Due after 5 years		4,909,500
Total par value	$	126,344,250

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Interest-rate Payment Terms. The following table details consolidated obligation bonds by interest-rate payment type (in thousands):

	As of September 30, 2006		As of December 31, 2005
Par value of consolidated bonds:
Fixed-rate	$	98,487,715	$	90,921,730
Step-up		18,116,050		21,491,050
Simple variable-rate		4,929,900		3,107,900
Variable capped floater		2,198,875		2,403,875
Fixed that converts to variable		1,484,450		1,464,400
Zero-coupon		832,760		862,760
Variable that converts to fixed		270,000		502,000
Inverse floating-rate		24,500		24,500
Total	$	126,344,250	$	120,778,215

Consolidated Obligation Discount Notes. The Bank’s participation in consolidated obligation discount notes, all of which are due within one year, was as follows (dollar amounts in thousands):

	Book Value		Par Value		Weighted Average Interest Rate
As of September 30, 2006	$	4,917,473	$	4,943,262	4.91	%
As of December 31, 2005	$	9,579,425	$	9,593,306	3.75	%

Note 10—Capital

The Bank was in compliance with the Finance Board’s regulatory capital rules and requirements as shown in the following table (dollar amounts in thousands):

	As of September 30, 2006						As of December 31, 2005
	Required			Actual			Required			Actual
Regulatory capital requirements:
Risk based capital	$	848,074		$	6,448,580		$	759,742		$	6,224,668
Total capital-to-assets ratio		4.00	%		4.48	%		4.00	%		4.35	%
Total regulatory capital	$	5,761,988		$	6,448,580		$	5,729,556		$	6,224,668
Leverage ratio		5.00	%		6.71	%		5.00	%		6.52	%
Leverage capital	$	7,202,485		$	9,672,870		$	7,161,944		$	9,337,002

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Mandatorily Redeemable Capital Stock. The Bank’s activity for mandatorily redeemable capital stock was as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Balance, beginning of period	$	132,224		$	256,829		$	143,096		$	239,009
Capital stock subject to mandatory redemption reclassified from equity during the period due to attainment of nonmember status		—			44			1,530			49,952
Repurchase/redemption of mandatorily capital stock during the period		(10,461	)		(38,386	)		(22,863	)		(70,474	)
Balance, end of period	$	121,763		$	218,487		$	121,763		$	218,487

The following table shows the amount of mandatorily redeemable capital stock by year of redemption (in thousands). The year of redemption in the table is the later of the end of the five-year redemption period, or the maturity date of the activity the stock is related to, if the capital stock represents the activity-based stock purchase requirement of a non-member.

	As of September 30, 2006		As of December 31, 2005
Contractual year of redemption:
Due in 1 year or less	$	49,423	$	32,807
Due after 1 year through 2 years		68,506		69,129
Due after 2 years through 3 years		507		23,680
Due after 3 years through 4 years		158		203
Due after 4 years through 5 years		290		516
Due after 5 years		2,879		16,761
Total	$	121,763	$	143,096

Note 11—Employee Retirement Plans

The following table presents the components of net periodic benefit cost for the Bank’s supplemental defined benefit pension plan (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Service cost	$	217		$	112		$	475		$	336
Interest cost		133			81			307			243
Amortization of prior service cost		(32	)		(13	)		(94	)		(39	)
Amortization of unrecognized net loss		141			72			285			216
Net periodic cost	$	459		$	252		$	973		$	756

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The following table presents the components of net periodic benefit cost for the Bank’s postretirement health benefit plan (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2006		2005		2006		2005
Service cost	$	185	$	155	$	555	$	465
Interest cost		158		106		475		318
Amortization of prior service cost		11		11		32		33
Amortization of unrecognized net loss		125		36		374		108
Net periodic cost	$	479	$	308	$	1,436	$	924

Note 12—Derivatives and Hedging Activities

The Bank uses interest-rate exchange agreements to manage its exposure to changes in interest rates, to manage embedded options in assets and liabilities, to hedge the market value of existing assets and liabilities, to hedge the duration risk of prepayable instruments, and to reduce funding costs. The majority of derivatives used by the Bank are in fair value hedges of advances and consolidated obligation bonds. To assist its members in meeting their hedging needs, the Bank also may act as an intermediary between its members and other counterparties by entering into offsetting derivative transactions. The derivatives used in intermediary activities do not qualify for SFAS 133 hedge accounting treatment and are separately marked-to-market through earnings. The net result of the accounting for these derivatives does not affect the operating results of the Bank significantly. These amounts are recorded in other income and presented as “net (loss) gain on derivatives and hedging activities.”

The notional principal of interest-rate exchange agreements in which the Bank was an intermediary was $486.3 million and $406.2 million as of September 30, 2006 and December 31, 2005, respectively.

Economic Hedge. A non-SFAS 133 economic hedge is defined as an interest-rate exchange agreement, hedging specific or non-specific underlying assets, liabilities or firm commitments that is an acceptable hedging strategy under the Bank’s risk management program and Finance Board regulatory requirements, but does not qualify for hedge accounting under the rules of SFAS 133. An economic hedge by definition introduces the potential for earnings variability because only the change in fair value on the interest-rate exchange agreement(s) is recorded and is not offset by corresponding changes in the fair value of the economically hedged asset, liability, or firm commitment.

Net (loss) gain on derivatives and hedging activities was as follows (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2006			2005		2006		2005
Gain related to fair-value hedge ineffectiveness	$	17,080		$	722	$	39,808	$	33,638
(Loss) gain on economic hedges and other		(109,622	)		111,573		51,071		46,233
Net (loss) gain on derivatives and hedging activities	$	(92,542	)	$	112,295	$	90,879	$	79,871

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The following table represents outstanding notional balances and estimated fair values of the derivatives outstanding used for fair value and economic hedging (in thousands):

	As of September 30, 2006					As of December 31, 2005
	Notional		Estimated Fair Value			Notional		Estimated Fair Value
Interest-rate swaps:
Fair value	$	162,151,025	$	(362,510	)	$	153,508,529	$	(909,852	)
Economic		7,116,693		(145,862	)		7,566,837		(234,985	)
Interest-rate swaptions:
Economic		345,000		7,981			1,065,000		14,288
Interest-rate caps/floors:
Economic		2,539,000		7,054			2,664,000		28,215
Interest-rate futures/forwards:
Economic		1,500		64			1,000		(16	)
Mortgage delivery commitments:
Economic		1,985		8			10,406		10
Total	$	172,155,203	$	(493,265	)	$	164,815,772	$	(1,102,340	)
Total derivatives excluding accrued interest			$	(493,265	)			$	(1,102,340	)
Accrued interest				28,257					41,450
Net derivative balances			$	(465,008	)			$	(1,060,890	)
Net derivative asset balances			$	247,494				$	162,492
Net derivative liability balances				(712,502	)				(1,223,382	)
Net derivative balances			$	(465,008	)			$	(1,060,890	)

The fair values of embedded derivatives included in the above were as follows (in thousands):

	As of September 30, 2006			As of December 31, 2005
Host contract:
Advances	$	(3,449	)	$	(20,804	)
Callable bonds		1,810			2,176
Total	$	(1,639	)	$	(18,628	)

The Bank is subject to credit risk due to the risk of nonperformance by counterparties to the derivative agreements. The Bank seeks to limit the degree of counterparty risk on derivative agreements by netting arrangements contained in the derivative agreements. Based on credit analyses and collateral requirements, Bank management presently does not anticipate any credit losses on its derivative agreements.

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The contractual or notional amount of interest-rate exchange agreements reflects the involvement of the Bank in the various classes of financial instruments. The notional amount of interest-rate exchange agreements does not measure the credit risk exposure of the Bank, and the maximum credit exposure of the Bank is substantially less than the notional amount. The Bank requires collateral agreements that establish collateral delivery thresholds for all derivatives. The maximum credit risk is the estimated cost of replacing favorable interest rate swaps, forward agreements, mandatory delivery contracts for mortgage loans, and purchased caps and floors that have a net positive market value, if the counterparty defaults and the related collateral, if any, is of no value to the Bank. This collateral has not been sold or repledged.

As of September 30, 2006 and December 31, 2005, the Bank’s maximum credit risk, as defined above, was approximately $244.7 million and $157.2 million, respectively. These totals include $101.0 million and $57.8 million, respectively, of net accrued interest receivable. In determining maximum credit risk, the Bank considers accrued interest receivables and payables, and the legal right to offset assets and liabilities by counterparty. Cash and securities held and pledged to the Bank as collateral for interest-rate exchange agreements totaled $210.7 million and $129.6 million as of September 30, 2006 and December 31, 2005, respectively. Additionally, collateral with respect to interest-rate exchange agreements with member institutions includes collateral assigned to the Bank, as evidenced by a written security agreement and held by the member institution for the benefit of the Bank.

Note 13—Commitments and Contingencies

As described in Note 9, consolidated obligations are backed only by the financial resources of the FHLBanks. The Federal Housing Finance Board (“Finance Board”), under 12 CFR Section 966.9(d), may at any time require any FHLBank to make principal or interest payments due on any consolidated obligations, whether or not the primary obligor FHLBank has defaulted on the payment of that obligation. No FHLBank has had to assume or pay the consolidated obligation of another FHLBank.

The par value of the FHLBanks’ outstanding consolidated obligations for which the Bank is jointly and severally liable was approximately $826.7 billion and $807.1 billion at September 30, 2006 and December 31, 2005, respectively, exclusive of the Bank’s own outstanding consolidated obligations.

Standby letters of credit are executed for members for a fee. A standby letter of credit is a short-term financing arrangement between the Bank and its member. If the Bank is required to make payment for a beneficiary’s draw, these amounts are converted into a collateralized advance to the member. Outstanding standby letters of credit were approximately $1.2 billion and $813.5 million at September 30, 2006 and December 31, 2005, respectively, and had original terms of one to 15 years with a final expiration in 2017. Unearned fees for standby letters of credit are recorded in other liabilities and amounted to $4.2 million and $3.1 million as of September 30, 2006 and December 31, 2005, respectively. Based on management’s credit analyses and collateral requirements, the Bank does not deem it necessary to record any additional liability on these commitments. Commitments are fully collateralized at the time of issuance.

Commitments that unconditionally obligate the Bank to purchase closed mortgage loans totaled $2.0 million and $10.4 million at September 30, 2006 and December 31, 2005, respectively, and are generally for periods not to exceed 45 days.

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The Bank executes interest-rate exchange agreements with major banks and broker-dealers and generally enters into bilateral collateral agreements. As of September 30, 2006, the Bank had pledged, as collateral to broker-dealers who have market risk exposure from the Bank related to interest-rate exchange agreements, securities with a book value of $945.3 million, of which $71.4 million cannot be sold or repledged and, thus are not identified on the Statement of Condition, and $873.9 million of which can be sold or repledged. As of December 31, 2005, the Bank had pledged, as collateral to broker-dealers who have market risk exposure from the Bank related to interest-rate exchange agreements, securities with a book value of $1.3 billion, of which $56.9 million cannot be sold or repledged and, thus are not identified on the Statement of Condition, and $1.3 billion of which can be sold or repledged.

The Bank is subject to legal proceedings arising in the normal course of business. After consultation with legal counsel, management does not, as of the date of the financial statements, anticipate that the ultimate liability, if any, arising out of these matters will have a material effect on the Bank’s financial condition or results of operations.

Note 14—Transactions with Members and their Affiliates and with Housing Associates

The Bank is a cooperative whose member institutions own almost all of the capital stock of the Bank. Former members own the remaining capital stock to support business transactions still carried on the Bank’s Statements of Condition. All holders of the Bank’s capital stock are able to receive dividends on their investments. All advances are issued to members and eligible “housing associates” under the Federal Home Loan Bank Act of 1932 (the “FHLBank Act”), as amended, and mortgage loans held for portfolio are purchased from members. The Bank also maintains demand deposit accounts primarily to facilitate settlement activities that are related directly to advances and mortgage loan purchases. All transactions with members are entered into in the ordinary course of the Bank’s business. Transactions with any member that has an officer or director who also is a director of the Bank are subject to the same Bank policies as transactions with other members. The Bank defines related parties as each of the other FHLBanks and those members with regulatory capital stock outstanding in excess of 10 percent of total regulatory capital stock. Based on this definition, one member institution, which held 21.7 percent of the Bank’s total regulatory capital stock as of September 30, 2006, was considered a related party. Total advances outstanding to this member were $28.7 billion and $26.4 billion as of September 30, 2006 and December 31, 2005, respectively. Total deposits held in the name of this member were $382.9 million and $204.9 million as of September 30, 2006 and December 31, 2005, respectively. No mortgage loans were acquired from this member during the nine months ended September 30, 2006 and 2005. Total mortgage-backed securities acquired from this member were $59.0 million and $478.6 million, respectively, for the three- and nine-month periods ended September 30, 2006, compared to $714.7 million for the same periods ended September 30, 2005.

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Note 15—Transactions with Other FHLBanks

The Bank’s activities with other FHLBanks are summarized below and have been identified in the Statements of Condition, Statements of Income and Statements of Cash Flows.

Borrowings with other FHLBanks. Occasionally, the Bank loans (or borrows) short-term funds to (from) other FHLBanks. There were no loans to or from other FHLBanks outstanding at September 30, 2006 or December 31, 2005. Interest income on loans to other FHLBanks totaled $68 thousand and $98 thousand, respectively, for the three- and nine-month periods ended September 30, 2006, compared to $95 thousand and $199 thousand, respectively, for the same periods ended September 30, 2005. During these same periods, interest expense on borrowings from other FHLBanks totaled $45 thousand and $68 thousand, respectively, for the three- and nine-month periods ended September 30, 2006, compared to $0 and $33 thousand for the three and nine months ended September 30, 2005, respectively. The following table summarizes the cash flow activities for loans to and borrowings from other FHLBanks (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Investing activities:
Loans made to other FHLBanks	$	(457,000	)	$	(957,000	)	$	(687,000	)	$	(2,632,022	)
Principal collected on loans to other FHLBanks		457,000			957,000			687,000			2,632,022
Net change in loans to other FHLBanks	$	—		$	—		$	—		$	—
Financing activities:
Proceeds from short-term borrowings from other FHLBanks	$	300,000		$	—		$	550,000		$	482,000
Payments of short-term borrowings from other FHLBanks		(300,000	)		—			(550,000	)		(482,000	)
Net change in borrowings from other FHLBanks	$	—		$	—		$	—		$	—

Investments in other FHLBank Consolidated Obligation Bonds. The Bank’s trading investment securities portfolio includes consolidated obligation bonds for which other FHLBanks are the primary obligors. The balances of these investments are presented in Note 3. All of these consolidated obligation bonds were purchased in the open market from third parties and are accounted for in the same manner as other similarly classified investments. Interest income earned on these consolidated obligation bonds on which another FHLBank is the primary obligor totaled $4.4 million and $13.4 million, respectively, for the three- and nine-month periods ended September 30, 2006, compared to $5.0 million and $15.2 million, respectively, for the same periods ended September 30, 2005.

Assumption of other FHLBank Consolidated Obligation Bonds. The Bank may, from time to time, assume the outstanding primary liability of another FHLBank’s consolidated obligation bonds rather than issue new debt for which the Bank is the primary obligor. The par value of the consolidated obligation bonds transferred to the Bank for the three- and nine-month periods ended September 30, 2006 was $0 and $69.0 million, respectively, compared to $35.0 million and $223.0 million for the same periods ended September 30, 2005. The par value of outstanding consolidated obligation bonds transferred to the Bank was $1.5 billion as of September 30, 2006 and December 31, 2005, respectively. The Bank accounts for these transfers in the same manner as it accounts for new debt issuances.

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MPF Program Service Fees and Loan Participations. Beginning in 2004, the Bank began paying a fee to FHLBank Chicago for services performed by it under the MPF Program. These fees totaled $208 thousand and $570 thousand, respectively, for the three- and nine-month periods ended September 30, 2006, compared to $148 thousand and $375 thousand, respectively, for the same periods ended September 30, 2005.

MPF Program Purchase of Participation Interests from Other FHLBanks. In 2000 and 2001, the Bank, together with FHLBank Pittsburgh and FHLBank Chicago, participated in the funding of one master commitment with a member of FHLBank Pittsburgh. As of September 30, 2006, the Bank’s outstanding balance related to these MPF Program assets was $7.0 million.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

Some of the statements made in this quarterly report on Form 10-Q may be “forward-looking statements,” which include statements with respect to the plans, objectives, expectations, estimates and future performance of the Bank and involve known and unknown risks, uncertainties, and other factors, many of which may be beyond the Bank’s control and which may cause the Bank’s actual results, performance, or achievements to be materially different from future results, performance, or achievements expressed or implied by the forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. The reader can identify these forward-looking statements through the Bank’s use of words such as “may,” “will,” “anticipate,” “hope,” “project,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “could,” “intend,” “seek,” “target,” and other similar words and expressions of the future. Such forward-looking statements include statements regarding any one or more of the following topics:

• The Bank’s business strategy and changes in operations, including, without limitation, product growth and change in product mix

• Future performance, including profitability, developments, or market forecasts

• Forward-looking accounting and financial statement effects.

The forward-looking statements may not be realized due to a variety of factors, including, without limitation, those risk factors provided under Item 1A of the Bank’s amended registration statement on Form 10, filed with the SEC on May 12, 2006 (the “Form 10”), and those risk factors presented under Item 1A in Part II of this quarterly report on Form 10-Q.

All written or oral statements that are made by or are attributable to the Bank are expressly qualified in their entirety by this cautionary notice. The reader should not place undue reliance on forward-looking statements, since the statements speak only as of the date that they are made. The Bank has no obligation and does not undertake publicly to update, revise, or correct any of the forward-looking statements after the date of this quarterly report, or after the respective dates on which these statements otherwise are made, whether as a result of new information, future events, or otherwise.

The discussion presented below provides an analysis of the Bank’s results of operations and financial condition for the three and nine months ended September 30, 2006 and 2005. Management’s discussion and analysis should be read in conjunction with the financial statements and accompanying notes presented elsewhere in the report, as well as the Bank’s audited financial statements for the year ended December 31, 2005.

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Executive Summary

General Overview

The Bank is a cooperative whose primary business activity is providing loans, which the Bank refers to as “advances,” to its members and eligible housing associates. The Bank also purchases single-family mortgage loans from members, makes grants and subsidized advances under its Affordable Housing Program (“AHP”), and provides correspondent banking services to members and eligible nonmembers. The consolidated obligations issued by the Office of Finance on behalf of the Federal Home Loan Bank System, or the “FHLBank System,” are the principal funding source for Bank assets. The Bank is primarily liable for repayment of consolidated obligations issued on its behalf and is jointly and severally liable for the consolidated obligations issued on behalf of the other FHLBanks. Deposits, other borrowings, and the issuance of capital stock provide additional funding to the Bank.

Financial Condition

Bank assets were $144.0 billion at September 30, 2006, an increase of $810.8 million from December 31, 2005. Advances, the largest asset component on the Bank’s statement of condition, grew by $346.2 million during this same period, or 0.34 percent. Advance growth has been slower for the first nine months of 2006 relative to previous years as a result of member institutions’ relatively high deposit levels, competition from other wholesale funding sources, such as providers of brokered certificates of deposits, and the maturity of approximately one-quarter of the Bank’s advance portfolio in 2006.

As of September 30, 2006, $63.3 billion of the Bank’s advances outstanding were to 10 member institutions, representing a concentration of 62.1 percent of the Bank’s total advances outstanding to these 10 commercial banks and savings institutions.

The Bank continues to meet capital-to-assets regulatory ratios and liquidity requirements at levels well above regulatory minimums. The regulatory capital-to-assets ratio as of September 30, 2006 was 4.48 percent, compared with a regulatory minimum requirement of 4.00 percent. The Bank also was in compliance with the regulatory requirement to maintain contingent liquidity in an amount sufficient to meet its liquidity needs for five business days if it is unable to access the capital markets; the Bank attempts to maintain sufficient liquidity to service debt obligations for at least 90 days assuming restricted debt market access.

During the quarter ended September 30, 2006, the Bank contributed $12.5 million to its AHP.

Results of Operations

The Bank’s net income for the three months ended September 30, 2006 totaled $111.0 million, an increase of 42.7 percent from $77.8 million for the three months ended September 30, 2005. The third quarter 2006 performance resulted in an annualized return on average equity (“ROE”) of 6.83 percent, compared to 5.04 percent for the third quarter 2005, and an annualized return on average assets of 0.30 percent for the third quarter 2006, compared to 0.21 percent for the third quarter 2005.

For the nine months ended September 30, 2006, the Bank’s net income increased to $319.8 million from $240.8 million for the nine months ended September 30, 2005. The Bank’s annualized ROE was

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6.81 percent for the nine months ended September 30, 2006 as compared to 5.51 percent for the nine months ended September 30, 2005, and the Bank’s annualized return on average assets was 0.30 percent for the nine months ended September 30, 2006, compared to 0.23 percent for the nine months ended September 30, 2005.

The increase in net income for the three- and nine-month periods ended September 30, 2006 compared to the same periods ended September 30, 2005 was due to an increase in both net interest income and other income. The increase in net interest income was due primarily to increases in interest rates. The increase in other income was due primarily to the effect of the interaction of interest rates on the Bank’s trading securities and derivative and hedging activities. These increases were offset partially by an increase in non-interest expense during the periods.

The Bank views both ROE and net income as important measures of profitability. ROE is a measure of a shareholder’s return on its investment in the Bank. The Bank attempts to provide a return on this investment, which, when combined with a member’s access to the Bank’s advances and other products, will be competitive with comparable investments.

The Bank also views net income as an important measure of profitability and economic success. While under the Bank’s current business model net income fluctuates with interest rates (in general, net income will decline in lower interest rate cycles), maintaining a minimum amount of net income is important in order to meet higher operating costs and to ensure that volatility associated with SFAS 133 hedging activities can be absorbed with current income. In addition, AHP and REFCORP assessments are tied directly to net income.

For the quarter ended September 30, 2006, the Bank distributed $89.4 million of earnings to members as a return on their capital investment in the Bank, representing an annualized dividend rate of 5.90 percent. This compared to an annualized dividend rate of 5.49 percent and 5.60 percent for the quarters ended March 31, 2006 and June 30, 2006, respectively. The Bank also contributed $21.6 million to retained earnings during the quarter ended September 30, 2006. The Bank’s retained earnings balance was $399.2 million as of September 30, 2006.

Business Outlook

Management expects that the Bank will continue to provide attractive financial products across a wide range of business, financial, and economic environments while also generating competitive returns for members. Two factors, however, could affect the Bank’s ability to meet these expectations.

The first factor potentially affecting Bank returns is the Finance Board proposal on retained earnings. This proposal, if enacted as currently proposed, would reduce the capital stock dividend during the period(s) necessary to accumulate enough retained earnings to meet the proposed target. A lower dividend potentially could reduce advance demand as members include the return on stock in calculating the all-in cost of borrowing from the Bank. Lower advance demand would reduce net income and could reduce ROE.

The second factor relates to interest rates. The Bank’s earnings performance tends to follow the direction of market interest rates with only a short timing lag. The Bank generally maintains a positive duration of equity, which means that liabilities reprice more frequently than assets. Consequently, increases in interest income lag increases in interest expense when rates rise, which decreases the

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Bank’s earnings. However, because the Bank’s duration of equity is relatively short (typically one to three years), this unfavorable factor is short-lived and soon is offset by repricing assets at higher interest rates. At the same time, the Bank reinvests equity capital at higher rates of interest. The net effect of maintaining a short duration of equity and reinvesting equity capital at higher rates is that earnings trend upward as rates rise. The opposite occurs as rates fall.

In addition, the relationship between short- and long-term interest rates affects the Bank’s profitability. The two most unfavorable interest-rate scenarios are (1) a dramatic rise in short-term rates coupled with a modest or no increase in long-term rates and (2) a dramatic decrease in long-term rates coupled with little change in short-term rates. Under the first scenario, which is the current interest rate environment with the present inverted yield curve, the ability to generate additional returns by profitably managing the interest-rate risk associated with retaining longer term assets and funding with shorter liabilities is limited. This environment, if sustained for a long period of time, could reduce the Bank’s ability to generate competitive returns. The second scenario would be expected to result in significant mortgage prepayments and a related increase in expense recognized from mortgage premium amortization along with lower investment yields.

Management does not expect any significant changes in the overall components of the balance sheet through 2006, with modest growth in the Bank’s advance and MPP portfolios. These modest increases should not have a material effect on the Bank’s risk position.

Management expects to continue to use interest-rate derivatives to hedge the Bank’s mortgage-backed securities (“MBS”) and MPP portfolios. These derivatives assist in mitigating interest-rate and prepayment risk. However, to the extent that they do not qualify for hedge accounting treatment under SFAS 133, their use could result in earnings volatility as reported on a GAAP basis. Management also uses derivative instruments to hedge other macro-level risks that do not qualify for hedge accounting treatment under SFAS 133. However, management seeks to contain the magnitude of mark-to-market adjustments by limiting the use of derivative instruments to hedge macro-level risks. Alternatively, management uses cash market liabilities that are not subject to mark-to-market requirements.

Management strives to maintain relatively low operating expense ratios, consistent with a wholesale banking structure, without sacrificing adequate systems and staffing. Management expects that operating expenses as a percent of assets generally should remain stable over the next few years, and that operating expenses on an absolute basis should increase moderately due to increased staffing and system expenses to comply with the relevant provisions of the Sarbanes-Oxley Act of 2002 and the Bank’s risk management, compliance and internal control activities. These increases should not have a material adverse effect on the Bank’s financial performance.

Financial Condition

The Bank’s principal assets consist of advances, short and long-term investments, and mortgage loans held for portfolio. The Bank obtains funding to support Bank business primarily through the issuance by the Office of Finance on the Bank’s behalf of debt securities in the form of consolidated obligations. The following table presents the distribution of the Bank’s total assets, liabilities, and capital by major class as of the dates indicated.

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	As of September 30, 2006			As of December 31, 2005			Increase/(Decrease)
	Amount		Percent of Total	Amount		Percent of Total	Amount			Percent
	(Dollars in thousands)
Advances, net	$	101,631,218	70.55	$	101,285,012	70.70	$	346,206		0.34
Investments		24,081,943	16.72		24,888,817	17.38		(806,874	)	(3.24	)
Federal funds sold		13,580,000	9.43		13,028,500	9.10		551,500		4.23
Mortgage loans, net		3,050,706	2.12		2,859,982	2.00		190,724		6.67
Interest-bearing deposits		660,814	0.46		254,321	0.18		406,493		159.83
Other assets		1,045,028	0.72		922,256	0.64		122,772		13.31
Total assets	$	144,049,709	100.00	$	143,238,888	100.00	$	810,821		0.57
Consolidated obligation bonds	$	125,184,906	90.90	$	119,174,663	86.89	$	6,010,243		5.04
Consolidated obligation discount notes		4,917,473	3.57		9,579,425	6.98		(4,661,952	)	(48.67	)
Deposits		4,757,350	3.45		5,234,874	3.82		(477,524	)	(9.12	)
Other liabilities		2,863,163	2.08		3,168,354	2.31		(305,191	)	(9.63	)
Total liabilities	$	137,722,892	100.00	$	137,157,316	100.00	$	565,576		0.41
Capital stock	$	5,927,657	93.69	$	5,753,203	94.60	$	174,454		3.03
Retained earnings		399,160	6.31		328,369	5.40		70,791		21.56
Total capital	$	6,326,817	100.00	$	6,081,572	100.00	$	245,245		4.03

The Bank’s principal assets and liability categories and capital stock are discussed in more detail below.

Advances

Advances were $101.6 billion at September 30, 2006, an increase of $346.2 million, or 0.34 percent, from December 31, 2005. The Bank is subject to concentration risk from advance exposure to a relatively small number of commercial banks and savings institutions. As of September 30, 2006 and December 31, 2005, the concentration of the Bank’s advances was $63.3 billion and $61.8 billion, respectively, to 10 member institutions, and this concentration represented 62.1 percent and 60.8 percent of the Bank’s total advances outstanding. Management believes that the Bank holds sufficient collateral, on a member-specific basis, to secure the advances to these 10 institutions, and the Bank does not expect to incur any credit losses on these advances.

At September 30, 2006, 59.8 percent of the Bank’s advances were variable-rate, the majority of which were indexed primarily to LIBOR. The Bank also offers variable-rate advances tied to the federal funds rate, prime rate and constant maturity swap rate.

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Investments

The Bank maintains a portfolio of investments for liquidity purposes and to provide additional earnings. Investment income also bolsters the Bank’s capacity to meet its commitment to affordable housing and community investment, to cover operating expenditures, and to satisfy the Bank’s annual REFCORP assessment. The Bank’s purchase of MBS also helps further the Bank’s commitment to supporting the affordable housing market.

To provide for the availability of funds to meet member credit needs, the Bank maintains a portfolio of short-term investments issued by highly rated institutions, including overnight federal funds, term federal funds, interest-bearing certificates of deposit, and commercial paper. As of September 30, 2006, total short-term investments were $14.2 billion, representing an increase of $958 million, or 7.21 percent, from December 31, 2005.

The Bank further enhances interest income by maintaining a longer-term investment portfolio, which includes securities issued by the U.S. government or U.S. government agencies, and MBS that are issued by government-sponsored mortgage agencies or that carry the highest ratings from Moody’s or Standard & Poor’s. The long-term investment portfolio generally provides the Bank with higher returns than those available in the short-term money markets. The following table sets forth more detailed information regarding the Bank’s long-term investment securities:

	As of September 30, 2006		As of December 31, 2005		Increase/ (Decrease)
					Amount			Percent
	(Dollars in thousands)
Held-to-maturity securities:
State or local housing agency obligations	$	114,007	$	111,757	$	2,250		2.01
Government-sponsored enterprises debt obligations		—		899,650		(899,650	)	(100.00	)
Mortgage-backed securities		19,387,096		18,617,089		770,007		4.14
Total		19,501,103		19,628,496		(127,393	)	(0.65	)
Trading securities:
Government-sponsored enterprises debt obligations		4,239,067		4,910,858		(671,791	)	(13.68	)
Other FHLBanks’ bonds		281,832		288,731		(6,899	)	(2.39	)
State or local housing agency obligations		59,941		60,732		(791	)	(1.30	)
Total		4,580,840		5,260,321		(679,481	)	(12.92	)
Total investment securities	$	24,081,943	$	24,888,817	$	(806,874	)	(3.24	)

As of September 30, 2006, total long-term investments were $24.1 billion, representing a decrease of $806.9 million, or 3.24 percent, from December 31, 2005. This decrease was due primarily to the maturity of government-sponsored enterprises (“GSE”) debt obligations classified as held-to-maturity with a par value of $900.0 million and the sale of GSE debt obligations classified as trading with a book value of $576.7 million. Net unrealized losses on trading securities sold that were previously recorded by the Bank became realized losses during the nine months ended September 30, 2006. These decreases were partially offset by a $770.0 million increase in the Bank’s MBS.

At September 30, 2006 and December 31, 2005, the balances of the Bank’s long-term and short-term investment portfolios were $38.3 billion and $38.2 billion, respectively.

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Finance Board regulations limit the Bank’s investment in MBS and asset-backed securities by requiring that the total book value of MBS owned by the Bank may not exceed 300 percent of the Bank’s previous month-end regulatory capital on the day it purchases the securities. On September 30, 2006, these investments amounted to 300.6 percent of total regulatory capital. The Bank was in compliance with the 300 percent limit at the time the MBS were purchased. The Bank exceeded the limit as of September 30, 2006 due to the repurchase of $139.5 million in capital stock from one of its members during September 2006. This repurchase was due to the maturity of $3.1 billion in the member’s advances, and the corresponding Bank repurchase of the member’s excess capital stock. In accordance with Finance Board regulations, the Bank does not purchase additional MBS when the ratio is above 300 percent.

Held-to-maturity securities are evaluated for impairment on a quarterly basis, or more frequently if events or changes in circumstances indicate that these investments are impaired. The Bank would record an impairment charge when a held-to-maturity security has experienced an other-than-temporary decline in fair value, or its cost may not be recoverable. The Bank reviewed its held-to-maturity securities as of September 30, 2006 and has determined that all unrealized losses were temporary and related to increases in interest rates. Additionally, the Bank has the ability and the intent to hold such investments to maturity, at which time the unrealized losses will be recovered. As of September 30, 2006, held-to-maturity securities that were in a gross unrealized loss position included state or local housing agency obligations and MBS. See Note 4 to the interim financial statements for a tabular presentation of the held-to-maturity securities with unrealized losses as of September 30, 2006 and December 31, 2005.

Mortgage Loans Held for Portfolio

Mortgage loans purchased from PFIs under the MPP and MPF programs and loan participations purchased under the Affordable Multifamily Participation Program (“AMPP”) comprised 2.12 percent of the Bank’s total assets as of September 30, 2006, compared to 2.00 percent of total assets as of December 31, 2005. The mortgage loan balance at September 30, 2006 was $3.1 billion, representing an increase of $190.7 million, or 6.67 percent, from the 2005 year-end balance. Beginning in 2006, the Bank no longer purchases assets under AMPP but retains its existing portfolio, which eventually will be reduced to zero in accordance with the ordinary course of the maturities of the assets. Currently, the Bank plans for slow, modest growth in its mortgage loan portfolio with a strategic emphasis on MPP over the MPF Program. The Bank believes it will be able to fund these additional mortgage purchases through the issuance of bullet and callable consolidated obligations. Credit quality in the loans acquired through the MPF Program and MPP will be maintained through the credit enhancement structures currently in place for these programs. Management does not expect this planned growth to have any negative effect on the Bank’s liquidity or capital resources and expects that the addition of these assets will be favorable to the Bank’s results of operations through increased net interest income.

As of September 30, 2006 and December 31, 2005, the Bank’s mortgage loan portfolio was concentrated in the Southeast because those members selling loans to the Bank were located primarily in the Southeast.

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Consolidated Obligations

The Bank funds its assets primarily through the issuance of consolidated obligation bonds and, to a lesser extent, consolidated obligation discount notes. Outstanding consolidation obligation bonds increased by $6.0 billion, or 5.04 percent, from the year end 2005, and discount notes decreased by $4.7 billion, or 48.7 percent, during the same period. The changes were due primarily to the Bank’s reduced use of overnight discount notes and increased use of bonds due to more attractive pricing and the Bank’s overall funding needs. Consolidated obligation issuances financed 90.3 percent of the $144.0 billion in total assets at September 30, 2006, a slight increase from the comparable financing ratio at December 31, 2005.

Consolidated obligation bonds outstanding at September 30, 2006 and December 31, 2005 were primarily fixed-rate debt. However, the Bank often enters into interest-rate exchange agreements simultaneously with the issuance of consolidated obligation bonds in order to convert the investor-defined terms of these debt instruments into terms more consistent with management’s funding strategies and to reduce funding costs. In effect, the interest-rate exchange agreements associated with the issuance of consolidated obligation bonds convert the terms of these debt instruments into synthetic variable-rate liabilities tied to a common short-term interest-rate index such as LIBOR. Of the par value of $126.3 billion of all consolidated obligation bonds outstanding as of September 30, 2006, the aggregate notional amount of outstanding interest-rate exchange agreements used to reconfigure the terms of specific consolidated obligation bonds was $98.7 billion, or 78.1 percent of the total par value of consolidated obligation bonds. The comparable notional amount at December 31, 2005 was $92.4 billion, or 76.5 percent, of the total par value of consolidated obligation bonds.

The funding mix between the use of non-callable and callable consolidated obligation bonds has been relatively stable. As of September 30, 2006, callable consolidated obligation bonds constituted 66.8 percent of the total par value of consolidated obligation bonds outstanding, compared to 66.6 percent at December 31, 2005. The interest-rate exchange agreements that the Bank may employ to hedge against the interest-rate risk associated with the Bank’s consolidated obligation bonds generally are callable by the counterparty. The Bank generally would call the hedged consolidated obligation bond if the call feature of the interest-rate exchange agreements were exercised. These call features could require the Bank to refinance a substantial portion of outstanding liabilities during times of decreasing interest rates. Call options on unhedged callable consolidated obligation bonds generally are exercised when the bond can be replaced at a lower economic cost.

Deposits

The Bank offers demand and overnight deposits and a short-term deposit program to members primarily as a liquidity management service. In addition, a member that services mortgage loans may deposit in the Bank funds collected in connection with the mortgage loans, pending disbursement of those funds to the owners of the mortgage loan. For demand deposits, the Bank pays interest at the overnight rate. The rate paid on term deposits is dependent upon the term of the deposit.

Most of these deposits represent member liquidity investments, which members may withdraw on demand. Therefore, the total account balance of the Bank’s deposits may be quite volatile. As a matter of prudence, the Bank typically invests deposit funds in liquid short-term assets. Member loan demand, deposit flows, and liquidity management strategies influence the amount and volatility of

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deposit balances carried with the Bank. Deposits totaled $4.8 billion as of September 30, 2006, compared to $5.2 billion as of December 31, 2005. Demand deposits comprised the largest percentage of deposits, representing 96.7 percent of total deposits as of September 30, 2006 compared to 96.9 percent as of December 31, 2005.

To support its member deposits, the FHLBank Act requires the Bank to have as a reserve an amount equal to or greater than the current deposits received from its members. These reserves are required to be invested in obligations of the United States, deposits in eligible banks or trust companies, or advances with maturities not exceeding five years. The Bank was in compliance with this depository liquidity requirement as of September 30, 2006.

Other Liabilities

Accrued interest payable and derivative liabilities represent 67.3 percent and 72.3 percent of other liabilities as of September 30, 2006 and December 31, 2005, respectively. The $305.2 million, or 9.63 percent decrease, in other liabilities to $2.9 billion at September 30, 2006 from the 2005 year-end balance is due primarily to the interaction of interest rates on the associated derivatives resulting in a $510.9 million decrease in derivative liabilities offset by a $147.9 million increase in accrued interest payable.

Capital

As of September 30, 2006, the Bank had total capital of $6.3 billion, an increase of $245.2 million, or 4.03 percent, from the 2005 year-end balance. Increased advance balances resulting in increased equity balance for members were the primary factors causing the increase in the Bank’s total capital.

The FHLBank Act and Finance Board regulations specify that each FHLBank must meet certain minimum regulatory capital standards. The Bank must maintain (i) total capital in an amount equal to at least 4.00 percent of its total assets, (ii) leverage capital in an amount equal to at least 5.00 percent of its total assets, and (iii) permanent capital in an amount equal to at least its regulatory risk-based capital requirement. Permanent capital is defined as total capital outstanding, including mandatorily redeemable capital stock, plus retained earnings. Finance Board staff has indicated that mandatorily redeemable capital stock is considered capital for regulatory purposes, and the Bank’s $121.8 million and $143.1 million in mandatorily redeemable capital stock at September 30, 2006 and December 31, 2005, respectively, is included in the line item “total regulatory capital” in the table below.

The Bank was in compliance with the Finance Board’s regulatory capital rules and requirements as shown in the following table:

	As of September 30, 2006						As of December 31, 2005
	Required			Actual			Required			Actual
	(Dollars in thousands)
Regulatory capital requirements:
Risk based capital	$	848,074		$	6,448,580		$	759,742		$	6,224,668
Total capital-to-assets ratio		4.00	%		4.48	%		4.00	%		4.35	%
Total regulatory capital	$	5,761,988		$	6,448,580		$	5,729,556		$	6,224,668
Leverage ratio		5.00	%		6.71	%		5.00	%		6.52	%
Leverage capital	$	7,202,485		$	9,672,870		$	7,161,944		$	9,337,002

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As of September 30, 2006, the Bank had $121.8 million in capital stock subject to mandatory redemption from seven members and former members, consisting entirely of subclass B2 activity-based stock. The Bank is not required to redeem or repurchase activity-based stock until the later of the expiration of the five year redemption period or until the activity no longer remains outstanding. In accordance with the Bank’s current practice, if activity-based stock becomes excess stock as a result of an activity’s no longer remaining outstanding, the Bank will repurchase the excess activity-based stock if the dollar amount of excess stock exceeds the threshold specified by the Bank, which is currently $100 thousand. As of September 30, 2006 and December 31, 2005, the Bank’s activity-based stock included $18.7 million and $12.3 million, respectively, of excess shares subject to repurchase by the Bank at its discretion. The Bank’s excess stock threshold and standard repurchase practice may be changed at the Bank’s discretion with proper notice to members.

Results of Operations

Net Income

The following table summarizes key changes in the components of net income for the three- and nine-month periods ended September 30, 2006 and 2005.

	Three Months Ended September 30,					Increase/ (Decrease) 2006/2005		Increase/ (Decrease) % 2006/2005	Nine Months Ended September 30,					Increase/ (Decrease) 2006/2005		Increase/ (Decrease) % 2006/2005
	2006		2005						2006		2005
	(Dollars in thousands)
Net interest income	$	170,387	$	158,162		$	12,225	7.73	$	498,695	$	462,707		$	35,988	7.78
Other income (loss)		6,714		(31,469	)		38,183	121.34		11,841		(66,527	)		78,368	117.80
Other expense		25,656		20,573			5,083	24.71		74,536		63,407			11,129	17.55
Total assessments		40,284		28,318			11,966	42.26		116,111		88,850			27,261	30.68
Net income		110,983		77,798			33,185	42.66		319,774		240,789			78,985	32.80

The Bank’s net income increased during the three- and nine-month periods ended September 30, 2006 when compared with the same periods ended September 30, 2005, due primarily to both an increase in net interest income due to higher interest rates and increased other income related to an increase in income due to the effects of SFAS 133 and SFAS No. 115, Accounting for Certain Investment in Debt and Equity Securities (“SFAS 115”).

Net Interest Income

The primary source of the Bank’s earnings is net interest income, which is the interest earned on assets, including member advances, mortgage loans and MBS held in portfolio, and other investments, less the interest expense incurred on consolidated obligations, deposits, and other borrowings used to fund these assets. Changes in interest rates significantly affect net interest income because interest rates affect not only the cash flows directly related to interest payments but also the speed at which earning assets may prepay. Net interest income also includes miscellaneous related items such as prepayment fees earned and debt issuance discounts.

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The following table summarizes key components of net interest income:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2006		2005		2006		2005
	(In thousands)
Interest income
Advances	$	1,421,468	$	951,942	$	3,824,973	$	2,386,014
Investments		303,425		295,405		909,465		857,860
Mortgage loans held for portfolio		39,293		33,921		112,723		96,039
Other		163,346		78,024		403,164		181,520
Total		1,927,532		1,359,292		5,250,325		3,521,433
Interest expense
Consolidated obligations		1,692,922		1,149,017		4,568,065		2,922,233
Deposits		55,698		42,290		160,061		104,518
Other		8,525		9,823		23,504		31,975
Total		1,757,145		1,201,130		4,751,630		3,058,726
Net interest income before mortgage loan loss provision	$	170,387	$	158,162	$	498,695	$	462,707

Management generally uses derivative instruments to hedge net interest income, with a primary goal of stabilizing the interest-rate spread over time and mitigating interest-rate risk and cash-flow variability.

Hedging Activities

If a hedging activity qualifies for hedge accounting treatment under SFAS 133, the Bank includes the related interest income or interest expense of the hedge instrument in the relevant income statement caption consistent with the hedged asset or liability. In addition, the Bank reports as a component of other income the fair values of both the hedge instrument and the hedged item. If the hedging relationship is discontinued, the Bank will cease marking the hedged item to fair value and will begin to amortize the cumulative fair-value adjustment that has occurred as a part of the hedge as interest income or interest expense over the life of the hedged asset or liability.

If a hedging relationship does not qualify for hedge accounting treatment under SFAS 133, the Bank reports the hedge instrument’s components of interest income or interest expense, together with the effect of the fair valuation, as components of other income. However, there is no corresponding fair value adjustment for the hedged asset or liability.

In summary, SFAS 133 requires the Bank to record all derivatives at fair value and to recognize unrealized gains or losses on derivative positions, regardless of whether offsetting gains or losses applicable to the underlying hedged assets or liabilities may be recognized in a symmetrical manner. Therefore, SFAS 133 introduces the potential for the income statement to reflect considerable timing differences between the current market valuation of the hedge instruments and the delayed effect from related hedged assets or liabilities (which often are reflected as components of interest income or interest expense over time). Furthermore, the effect of certain hedging transactions using derivatives is spread throughout the income statement into captions other than net interest income.

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Securities characterized as trading securities in the statement of condition are reported at fair value under SFAS 115. Net interest income includes the interest earned on these securities, which was $67.8 million and $216.1 million, respectively, for the three- and nine-month periods ended September 30, 2006 compared to $79.6 million and $238.7 million, respectively, for the same periods ended September 30, 2005. Changes in the fair value of these securities are reported as a separate component of other income. Management hedges the Bank’s exposure to these fair-value fluctuations, but the hedging activity does not qualify for hedge accounting treatment under SFAS 133. Because the hedge is intended to mirror the trading security, the interest component of the hedging instrument is reported in other income and offsets partially the amount of interest income earned on the trading securities, as one side of the derivative will mirror the interest received on the trading security with interest paid on the swap while the other side of the derivative will provide the interest received on the derivative (which is a variable rate representing LIBOR plus a spread). The hedging strategy for trading securities is to swap them into variable-rate instruments.

The table below outlines the overall effect of hedging activities on net interest income- and other income-related results. For a description regarding the individual interest components discussed below, see the Bank’s Form 10.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
	(In thousands)
Net interest income	$	170,387		$	158,162		$	498,695		$	462,707
Interest components of hedging activities included in net interest income:
Hedging advances	$	172,045		$	(37,451	)	$	388,387		$	(315,563	)
Hedging consolidated obligations		(235,415	)		(9,304	)		(580,497	)		160,993
Hedging related amortization		(8,526	)		(13,450	)		(37,892	)		(24,601	)
Net decrease in net interest income	$	(71,896	)	$	(60,205	)	$	(230,002	)	$	(179,171	)
Interest components of derivative activity included in other income:
Purchased options	$	1,364		$	2,132		$	4,739		$	8,649
Synthetic macro funding		(2,945	)		(3,100	)		(8,298	)		(10,956	)
Trading securities		(3,890	)		(29,420	)		(29,198	)		(107,738	)
Other		28			36			82			96
Net decrease in other income	$	(5,443	)	$	(30,352	)	$	(32,675	)	$	(109,949	)

Spread and Yield Analysis

Net interest income is affected by the level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities. The spread and yield analysis provides certain information about the average balances of the Bank’s assets and liabilities as well as the average rates earned and paid on these assets and liabilities, respectively, for the three- and nine-month periods ended September 30, 2006 and 2005. Trading securities are included in the average balances of the “Long-term investments” category. Even though the securities are classified as trading at inception, the Bank has no obligation to trade them. The spread and yield analysis also presents spreads between yields on total interest-earning assets and the cost of interest-bearing liabilities and spreads between

38

yields on total earning assets and the cost of total funding sources (interest-bearing liabilities plus capital plus other interest-free liabilities that fund earning assets).

Spread and Yield Analysis

	Three Months Ended September 30,
	2006							2005
	Average Balance			Interest		Yield/ Rate		Average Balance			Interest		Yield/ Rate
	(Dollars in thousands)
Assets
Federal funds sold	$	11,323,952		$	152,952	5.36	%	$	7,694,134		$	68,639	3.54	%
Interest-bearing deposits in banks		759,350			10,326	5.40	%		1,079,902			9,290	3.41	%
Long-term investments (1)		24,033,619			303,425	5.01	%		24,647,563			295,405	4.75	%
Advances		103,221,685			1,421,468	5.46	%		106,151,482			951,942	3.56	%
Mortgage loans held for portfolio (2)		3,036,802			39,293	5.13	%		2,720,020			33,921	4.95	%
Loans to other FHLBanks		4,967			68	5.43	%		10,402			95	3.62	%
Total interest-earning assets		142,380,375			1,927,532	5.37	%		142,303,503			1,359,292	3.79	%
Allowance for credit losses on mortgage loans		(529	)						(900	)
Other assets		2,517,502							2,188,327
Total assets	$	144,897,348						$	144,490,930
Liabilities and Capital
Demand and overnight deposits	$	4,002,711			52,465	5.20	%	$	4,812,744			41,100	3.39	%
Term deposits		25,198			325	5.12	%		32,901			282	3.40	%
Other interest-bearing deposits		216,145			2,908	5.34	%		99,493			908	3.62	%
Short-term borrowings		6,855,857			90,155	5.22	%		9,374,419			80,430	3.40	%
Long-term debt		123,719,696			1,603,096	5.14	%		118,942,710			1,068,646	3.56	%
Other borrowings		631,404			8,196	5.15	%		1,250,329			9,764	3.10	%
Total interest-bearing liabilities		135,451,011			1,757,145	5.15	%		134,512,596			1,201,130	3.54	%
Noninterest-bearing deposits		26,289							90,546
Other liabilities		2,975,541							3,767,178
Total capital		6,444,507							6,120,610
Total liabilities and capital	$	144,897,348						$	144,490,930
Net interest income and net yield on interest-earning assets				$	170,387	0.47	%				$	158,162	0.45	%
Interest rate spread (3)						0.22	%						0.25	%
Average interest-earning assets to interest-bearing liabilities						105.12	%						105.79	%

Notes

(1) Trading securities are included in the Long-term investments line at fair value.

(2) Nonperforming loans are included in average balances used to determine average rate.

(3) For the three months ended September 30, 2006 and 2005, the interest rate spread would have been approximately 0.48% and 0.46% respectively, if hedges had not been used to mitigate interest rate fluctuations; however, the Bank’s duration of equity and sensitivity to interest rate risk would have been significantly higher.

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Spread and Yield Analysis

	Nine Months Ended September 30,
	2006							2005
	Average Balance			Interest		Yield/ Rate		Average Balance			Interest		Yield/ Rate
	(Dollars in thousands)
Assets
Federal funds sold	$	10,096,170		$	377,260	5.00	%	$	6,760,283		$	155,260	3.07	%
Interest-bearing deposits in banks		678,674			25,806	5.08	%		1,148,200			26,061	3.03	%
Long-term investments (1)		24,238,935			909,465	5.02	%		23,860,490			857,860	4.81	%
Advances		101,247,750			3,824,973	5.05	%		101,544,503			2,386,014	3.14	%
Mortgage loans held for portfolio (2)		2,936,527			112,723	5.13	%		2,580,349			96,039	4.98	%
Loans to other FHLBanks		2,516			98	5.21	%		8,267			199	3.22	%
Total interest-earning assets		139,200,572			5,250,325	5.04	%		135,902,092			3,521,433	3.46	%
Allowance for credit losses on mortgage loans		(535	)						(806	)
Other assets		2,312,354							2,023,289
Total assets	$	141,512,391						$	137,924,575
Liabilities and Capital
Demand and overnight deposits	$	4,203,789			151,436	4.82	%	$	4,626,446			100,888	2.92	%
Term deposits		29,088			1,042	4.79	%		33,073			725	2.93	%
Other interest-bearing deposits		201,926			7,583	5.02	%		130,783			2,905	2.97	%
Short-term borrowings		7,410,665			269,407	4.86	%		7,787,463			173,020	2.97	%
Long-term debt		120,125,158			4,299,264	4.79	%		114,461,692			2,749,371	3.21	%
Other borrowings		638,490			22,898	4.79	%		1,352,413			31,817	3.15	%
Total interest-bearing liabilities		132,609,116			4,751,630	4.79	%		128,391,870			3,058,726	3.19	%
Noninterest-bearing deposits		31,434							85,142
Other liabilities		2,593,137							3,607,283
Total capital		6,278,704							5,840,280
Total liabilities and capital	$	141,512,391						$	137,924,575
Net interest income and net yield on interest-earning assets				$	498,695	0.48	%				$	462,707	0.46	%
Interest rate spread (3)						0.25	%						0.27	%
Average interest-earning assets to interest-bearing liabilities						104.97	%						105.85	%

Notes

(1) Trading securities are included in the Long-term investments line at fair value.

(2) Nonperforming loans are included in average balances used to determine average rate.

(3) For the nine months ended September 30, 2006 and 2005, the interest rate spread would have been approximately 0.52% and 0.49% respectively, if hedges had not been used to mitigate interest rate fluctuations; however, the Bank’s duration of equity and sensitivity to interest rate risk would have been significantly higher.

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The primary factor contributing to the three basis-point and two basis-point decrease in interest-rate spread between the three-month and nine-month periods ended September 30, 2006 and 2005, respectively, was that the rate on interest-bearing liabilities increased by more than the rate on interest-earning assets. This decrease in interest-rate spread occurred primarily because of the Bank’s positive duration of equity at September 30, 2006, which meant that the liabilities repriced more frequently than the assets.

Rate and Volume Analysis

Changes in net interest income are attributed to either changes in average balances (volume change) or changes in average rates (rate change) for earning assets and sources of funds on which interest is received or paid. Volume change is calculated as change in volume multiplied by the previous rate, while rate change is the change in rate multiplied by the previous volume. The rate/volume change, change in rate multiplied by change in volume, is allocated between volume change and rate change at the ratio each component bears to the absolute volume of its total.

The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities affected the Bank’s interest income and interest expense during the three- and nine-month periods ended September 30, 2006 compared to the same periods ended September 30, 2005.

	Three Months Ended September 30,								Nine Months Ended September 30,
	2006 vs. 2005								2006 vs. 2005
	Volume			Rate		Increase (Decrease)			Volume			Rate		Increase (Decrease)
	(In thousands)
Increase (decrease) in interest income:
Federal funds sold	$	40,347		$	43,966	$	84,313		$	97,769		$	124,231	$	222,000
Interest-bearing deposits in banks		(3,299	)		4,335		1,036			(13,371	)		13,116		(255	)
Long-term investments		(7,483	)		15,503		8,020			13,765			37,840		51,605
Advances		(26,963	)		496,489		469,526			(6,993	)		1,445,952		1,438,959
Mortgage loans held for portfolio		4,063			1,309		5,372			13,595			3,089		16,684
Loans to other FHLBanks		(62	)		35		(27	)		(184	)		83		(101	)
Total		6,603			561,637		568,240			104,581			1,624,311		1,728,892
Increase (decrease) in interest expense:
Demand and overnight deposits		(7,803	)		19,168		11,365			(9,955	)		60,503		50,548
Term deposits		(77	)		120		43			(96	)		413		317
Other interest-bearing deposits		1,424			576		2,000			2,061			2,617		4,678
Short-term borrowings		(25,468	)		35,193		9,725			(8,748	)		105,135		96,387
Long-term debt		44,499			489,951		534,450			142,150			1,407,743		1,549,893
Other borrowings		(6,202	)		4,634		(1,568	)		(21,214	)		12,295		(8,919	)
Total		6,373			549,642		556,015			104,198			1,588,706		1,692,904
Increase in net interest income	$	230		$	11,995	$	12,225		$	383		$	35,605	$	35,988

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Other Income (Loss)

The following table presents other income (loss) for the three- and nine-month periods ended September 30, 2006 and 2005.

	Three Months Ended September 30,						Increase (Decrease)			Nine Months Ended September 30,						Increase (Decrease)
	2006			2005			2006/2005			2006			2005			2006/2005
	(In thousands)
Other income (loss):
Service fees	$	565		$	755		$	(190	)	$	1,741		$	2,138		$	(397	)
Net gain (loss) on trading securities		98,661			(144,823	)		243,484			(81,251	)		(149,788	)		68,537
Net (loss) gain on derivatives and hedging activities		(92,542	)		112,295			(204,837	)		90,879			79,871			11,008
Other		30			304			(274	)		472			1,252			(780	)
Total	$	6,714		$	(31,469	)	$	38,183		$	11,841		$	(66,527	)	$	78,368

The Bank’s net gain (loss) on trading securities and net (loss) gain on derivatives and hedging activities comprise the majority of other income (loss). The Bank economically hedges trading securities with derivative transactions, and the income effect of the market-value change for these securities under SFAS 115 during the three- and nine-month periods ended September 30, 2006 and 2005 was offset by market-value changes in the related derivatives. The overall changes in other income (loss) during the periods were caused primarily by the adjustments required to report trading securities at fair value, as required by SFAS 115, and hedging-related adjustments required by SFAS 133, which are reported in the overall hedging activities (including those related to trading securities). The Bank’s portfolio of investments classified as trading experienced a net gain of $98.7 million and a net loss of $81.3 million, respectively, for the three- and nine-month periods ended September 30, 2006 compared to net losses of $144.8 million and $149.8 million, respectively, for the same periods ended September 30, 2005. The net gain for the three-month period and decrease in loss for the nine-month period are due to falling interest rates in the portion of the yield curve pertaining to the maturities of the trading securities.

The following table summarizes one component of other income, net (loss) gain on derivatives and hedging activities, for the three- and nine-month periods ended September 30, 2006 and 2005. When hedging, both the derivative instrument and the related asset or liability are marked to market and net (loss) gain on derivatives and hedging activities reflects the degree of ineffectiveness in the hedging activity, which can be either favorable or unfavorable to net income at any particular point. Net (loss) gain on derivatives and hedging activities also includes the interest component for hedging activity not qualifying for hedge accounting treatment under SFAS 133.

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Net (Loss) Gain on Derivatives and Hedging Activities

	Advances		Purchased Options, Macro Hedging and Synthetic Macro Funding			Trading Securities			MPF/MPP Loans			Consolidated Obligations			Intermediary Positions			Total
	(In thousands)
Three Months Ended September 30, 2006
Interest-related	$	—	$	(1,581	)	$	(3,890	)	$	—		$	—		$	28		$	(5,443	)
Fair-value hedge qualifying under SFAS 133		20,696		—			—			—			(3,616	)		—			17,080
Economic hedges and other		—		(2,683	)		(101,546	)		72			—			(22	)		(104,179	)
Total gain (loss)	$	20,696	$	(4,264	)	$	(105,436	)	$	72		$	(3,616	)	$	6		$	(92,542	)
	Advances		Purchased Options, Macro Hedging and Synthetic Macro Funding			Trading Securities			MPF/MPP Loans			Consolidated Obligations			Intermediary Positions			Total
	(In thousands)
Three Months Ended September 30, 2005
Interest-related	$	—	$	(968	)	$	(29,420	)	$	—		$	—		$	36		$	(30,352	)
Fair-value hedge qualifying under SFAS 133		16,496		—			—			—			(15,774	)		—			722
Economic hedges and other		—		(3,020	)		145,029			(56	)		—			(28	)		141,925
Total gain (loss)	$	16,496	$	(3,988	)	$	115,609		$	(56	)	$	(15,774	)	$	8		$	112,295
	Advances		Purchased Options, Macro Hedging and Synthetic Macro Funding			Trading Securities			MPF/MPP Loans			Consolidated Obligations			Intermediary Positions			Total
	(In thousands)
Nine Months Ended September 30, 2006
Interest-related	$	—	$	(3,559	)	$	(29,198	)	$	—		$	—		$	82		$	(32,675	)
Fair-value hedge qualifying under SFAS 133		36,322		—			—			—			3,486			—			39,808
Economic hedges and other		—		4,012			80,114			(223	)		—			(157	)		83,746
Total gain (loss)	$	36,322	$	453		$	50,916		$	(223	)	$	3,486		$	(75	)	$	90,879
	Advances		Purchased Options, Macro Hedging and Synthetic Macro Funding			Trading Securities			MPF/MPP Loans			Consolidated Obligations			Intermediary Positions			Total
	(In thousands)
Nine Months Ended September 30, 2005
Interest-related	$	—	$	(2,307	)	$	(107,738	)	$	—		$	—		$	96		$	(109,949	)
Fair-value hedge qualifying under SFAS 133		40,062		—			—			—			(6,424	)		—			33,638
Economic hedges and other		—		(2,361	)		158,783			(175	)		—			(65	)		156,182
Total gain (loss)	$	40,062	$	(4,668	)	$	51,045		$	(175	)	$	(6,424	)	$	31		$	79,871

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Non-interest Expense

The following table presents non-interest expense for the three- and nine-month periods ended September 30, 2006 and 2005.

	Three Months Ended September 30,				Increase (Decrease)			Nine Months Ended September 30,				Increase (Decrease)
	2006		2005		2006/2005			2006		2005		2006/2005
	(In thousands)
Other expense:
Salaries and employee benefits	$	13,979	$	11,117	$	2,862		$	41,373	$	33,046	$	8,327
Occupancy cost		923		897		26			2,683		2,400		283
Other operating expenses		8,417		5,892		2,525			22,093		20,370		1,723
Total operating expenses		23,319		17,906		5,413			66,149		55,816		10,333
Finance Board and Office of Finance		1,949		1,980		(31	)		5,856		5,633		223
Other		388		687		(299	)		2,531		1,958		573
Total		25,656		20,573		5,083			74,536		63,407		11,129
Assessments:
Affordable Housing Program		12,543		8,871		3,672			36,166		27,927		8,239
REFCORP		27,741		19,447		8,294			79,945		60,923		19,022
Total		40,284		28,318		11,966			116,111		88,850		27,261
Total non-interest expense	$	65,940	$	48,891	$	17,049		$	190,647	$	152,257	$	38,390

Non-interest expense during the three- and nine-month periods ended September 30, 2006 was $65.9 million and $190.6 million, respectively, an increase of $17.0 million and $38.4 million, respectively, compared to the same periods ended September 30, 2005. The key factors in these increases were the REFCORP assessment, which is established as a fixed percent of GAAP income, and the AHP assessment, which is established as a fixed percent of regulatory income. The increase in operating expenses during the three- and nine-month periods ended September 30, 2006 compared to the same periods ended September 30, 2005 reflects increased staffing and system expenses for compliance with the relevant provisions of the Sarbanes-Oxley Act of 2002 and the Bank’s risk management, compliance and internal control activities.

Liquidity and Capital Resources

The Bank has two types of liquidity requirements that are discussed in further detail below. The Bank meets its liquidity needs from both asset and liability sources, primarily through consolidated obligation issuances, and also from deposits and investment activity.

Operational Liquidity

A liquidity objective for the Bank is to meet operational and member liquidity needs under all reasonable economic and operational situations. The Bank uses liquidity to absorb fluctuations in asset and liability balances and to assure an adequate reservoir of funding to support attractive and stable advance pricing.

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Operational liquidity is defined as the ready cash and borrowing capacity available to meet the Bank’s day-to-day needs. In order to provide for adequate operational liquidity on each business day, the Bank has established a daily liquidity target.

Contingent Liquidity

The Bank’s principal source of liquidity is the issuance of consolidated obligations. The business activities of the Bank depend on its ability to access the capital markets. The Bank attempts to maintain sufficient liquidity to service debt obligations for at least 90 days assuming restricted debt market access. In addition, Finance Board regulations and the Bank’s Risk Management Policy (“RMP”) require the Bank to maintain contingent liquidity in an amount sufficient to meet its liquidity needs for five business days if it is unable to access the capital markets. The Bank was in compliance with this liquidity regulation as of September 30, 2006.

In addition, the Bank’s RMP requires it to maintain a positive value for the following calculation:

Marketable non-advance assets maturing in one year or less

+Cash plus overnight federal funds sold from prior day

+All non-advance assets maturing in seven days or less

+95 percent of agency securities available for repurchase

+85 percent of non-agency securities available for repurchase

+75 percent of irrevocable lines of credit for second-highest ranking category/Nationally Recognized Statistical Rating Organization

= Total contingency liquidity available

-Total liability maturities over the next seven days

-50 percent of total deposits

-100 percent of debt that is to be called over the next seven days

= Net contingency liquidity.

In the event of an actual stressed environment, the Bank will prioritize liquidity requests from its members, and management will consult with the Finance Committee of the board of directors at the earliest opportunity to discuss a remedial strategy.

Federal Daylight Overdraft Rule Change

Prior to July 20, 2006, the Federal Reserve Banks posted interest and principal payments on government-sponsored enterprises’ securities by 9:15 a.m. eastern time on the due date even if the issuer had not fully funded its payments. Effective July 20, 2006, the Federal Reserve Banks no longer disburse principal and interest on debt issued by government-sponsored enterprises (such as the FHLBanks) and some international organizations, until their accounts contain sufficient funds to cover those payments.

This change may, from time to time, cause some minor delay in the Bank’s disbursement of funds as liquidity is directed to those payments as a first priority. The FHLBanks and the Office of Finance have entered into an agreement for timely funding in these accounts which contains a contingency plan in the event that an FHLBank is not able to fund in a timely manner. This includes direct placement of consolidated obligations with another FHLBank, which the Finance Board has permitted specifically for this circumstance.

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Off-balance Sheet Commitments

The Bank’s primary off-balance sheet commitments are as follows:

• The Bank has joint and several liability for all of the consolidated obligations issued by the Office of Finance on behalf of the FHLBanks

• The Bank has outstanding commitments arising from standby letters of credit.

Each FHLBank has joint and several liability for all consolidated obligations issued on its behalf by the Office of Finance. Accordingly, should one or more of the FHLBanks be unable to satisfy its portion of the payment obligations under the consolidated obligations, any of the other FHLBanks, including the Bank, could be called upon to repay all or any part of such payment obligations, as determined or approved by the Finance Board. The Bank considers the joint and several liability as a related party guarantee. These related party guarantees meet the scope exceptions in Financial Interpretation Number 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. Accordingly, the Bank has not recognized a liability for its joint and several obligations related to other FHLBanks’ consolidated obligations at September 30, 2006 or December 31, 2005. As of September 30, 2006, the FHLBanks had $958.0 billion in aggregate principal amount of consolidated obligations issued and outstanding, $131.3 billion of which was attributable to the Bank.

Commitments to extend credit, including standby letters of credit, are agreements to lend. The Bank issues a standby letter of credit on behalf of a member in exchange for a fee. A member typically uses these standby letters of credit as a short-term financing arrangement. If the Bank is required to make payment for a beneficiary’s draw, the Bank converts such paid amount to a collateralized advance to the member. As of September 30, 2006, the Bank had outstanding standby letters of credit of approximately $1.2 billion with original terms of one to 15 years, with the longest final expiration currently in 2017. The Bank requires its borrowers to collateralize fully the face amount of any letter of credit issued by the Bank, as if such face amount were an advance to the borrower. Based on management’s credit analyses and collateral requirements, the Bank presently does not deem it necessary to have an allowance for these unfunded letters of credit.

Risk Management

A discussion of the Bank’s risk management is described in detail in the Bank’s Form 10.

Critical Accounting Policies and Estimates

The Bank’s critical accounting policies and estimates are described in detail in the Bank’s Form 10. There have been no material changes to these policies and estimates during the period reported.

Recent Accounting Guidance

In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 155, Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements Nos. 133 and 140 (“SFAS 155”). SFAS 155 (a) permits fair value

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remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, (b) clarifies that certain instruments are not subject to the requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), (c) establishes a requirement to evaluate interests in securitized financial assets to identify interests that may contain an embedded derivative requiring bifurcation, (d) clarifies what may be an embedded derivative for certain concentrations of credit risk, and (e) amends SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities (“SFAS 140”), to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006, and may be applied on an instrument-by-instrument basis. The Bank adopted SFAS 155 effective January 1, 2006; however, the Bank has not elected to use the fair value option on any transactions either prior to or after January 1, 2006. Thus, the adoption of the standard did not affect the financial condition or results of operations of the Bank.

On September 30, 2005, the FASB issued Derivatives Implementation Group (“DIG”) Issue B38, Evaluation of Net Settlement with Respect to the Settlement of a Debt Instrument through Exercise of an Embedded Put Option or Call Option and DIG Issue B39, Application of Paragraph 13(b) to Call Options That Are Exercisable Only by the Debtor. DIG Issue B38 addresses an application issue when applying SFAS 133, paragraph 12(c), to a put option or call option (including a prepayment option) embedded in a debt instrument. DIG Issue B39 addresses the conditions in SFAS 133, paragraph 13(b) as they relate to whether an embedded call option in a hybrid instrument containing a host contract is clearly and closely related to the host contract if the right to accelerate the settlement of debt is exercisable only by the debtor. DIG Issues B38 and B39 become effective for periods beginning after December 15, 2005. The Bank adopted DIG Issues B38 and B39 effective January 1, 2006 with no material effect on its results of operations or financial condition.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets-An Amendment of FASB Statement No. 140 (“SFAS 156”). SFAS 156 requires that all separately recognized servicing assets and servicing liabilities be measured initially at fair value, if practicable. SFAS 156 permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. SFAS 156 is effective as of the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Bank does not expect SFAS 156 to have a material effect on its results of operations or financial condition at the time of adoption. The Bank intends to adopt SFAS 156 as of January 1, 2007.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under SFAS 157, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early adoption permitted. The Bank has not yet determined the effect, if any, that the implementation of SFAS 157 will have on its results of operations or financial condition. The Bank intends to adopt SFAS 157 as of January 1, 2008.

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In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). SAB 108 provides interpretive guidance regarding the appropriate treatment of the carryover or reversal of prior year misstatements in assessing the materiality of a current year misstatement. The SEC staff believes that registrants should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. SAB 108 is effective for fiscal years ending on or after November 15, 2006, with early application encouraged. The Bank does not expect SAB 108 to have a material effect on its results of operations or financial condition at the time of adoption. The Bank intends to adopt SAB 108 as of December 31, 2006.

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (“SFAS 158”). SFAS 158 requires an employer to recognize on its balance sheet an asset or liability equal to the overfunded or underfunded benefit obligation (projected benefit obligation for pensions and accumulated postretirement benefit obligation for other postretirement benefits) of each defined benefit pension and other postretirement plan, other than a multiemployer plan. The resulting balance sheet adjustment, which will be recorded annually absent an interim remeasurement, is offset by a corresponding adjustment to other accumulated comprehensive income. Amounts recognized in accumulated other comprehensive income, including the gains or losses, prior service costs or credits, and any transition asset or obligation that has not yet been amortized as a component of net periodic benefit cost, are adjusted as they are subsequently recognized as components of net periodic benefit cost. Net periodic benefit cost will continue to be measured and recognized as in the past. SFAS 158 also eliminates the ability to use an early measurement date for defined benefit plan assets and obligations. Under SFAS 158, defined benefit plan assets and obligations will be measured as of the date of the employer’s fiscal year-end statement of financial position, with limited exceptions. The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective as of the end of the fiscal year ending after December 15, 2006, for entities with publicly traded equity securities, and at the end of the fiscal year ending after June 15, 2007, for all other entities. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of position is effective for fiscal years ending after December 15, 2008. The Bank does not believe that the effect of the implementation of SFAS 158 will be material. The Bank intends to adopt SFAS 158 as of December 31, 2006.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Changes in interest rates can have a direct effect on the value of the Bank’s assets and the assets of the Bank’s members. As a result of the volume of interest-earning assets and interest-bearing liabilities held by the Bank, interest-rate risk is the market risk to which the Bank is exposed primarily and which can have the greatest effect on the Bank’s financial condition and results of operations.

Interest-rate Risk Management. Interest-rate risk represents the risk that the aggregate market value or estimated net fair value of the Bank’s asset, liability, and derivative portfolios will decline as a result of interest-rate volatility or that net earnings will be reduced significantly by interest-rate changes. Interest-rate risk can occur in a variety of forms. These include repricing risk, yield-curve risk, basis risk, and option risk. The Bank faces repricing risk whenever asset and liability repricing terms are not synchronized, resulting in interest-margin sensitivity to changes in market interest rates. Yield-curve risk reflects the possibility that changes in the shape of the yield curve may affect the market value of the Bank’s assets and liabilities differently. Basis risk occurs when the relationships between interest-

48

rate curves for different financial instruments change. Option risk results when assets or liabilities contain prepayment options not controllable by the Bank.

Management attempts to control interest-rate risk exposure by using appropriate funding instruments and hedging strategies. Hedging may occur at the micro level, for one or more specifically identified transactions, or at the macro level. Management evaluates the Bank’s macro hedge positions and funding strategies on a daily basis and makes adjustments as necessary.

Table of Derivative Financial Instruments. The following table summarizes the fair-value amounts of derivative financial instruments, excluding accrued interest, by product type.

Derivative Financial Instruments Excluding Accrued Interest/By Product

	As of September 30, 2006					As of December 31, 2005
	Total Notional		Estimated Fair Value Gain /(Loss) (excludes accrued interest)			Total Notional		Estimated Fair Value Gain /(Loss) (excludes accrued interest)
	( In thousands)
Advances:
Fair value	$	63,856,913	$	388,229		$	61,404,695	$	304,574
Economic		1,325,900		63			1,175,000		(40	)
Total		65,182,813		388,292			62,579,695		304,534
Investments:
Economic		7,760,466		(129,270	)		9,376,169		(190,969	)
Total		7,760,466		(129,270	)		9,376,169		(190,969	)
MPF/MPP loans:
Stand alone delivery commitments		1,985		8			10,406		10
Total		1,985		8			10,406		10
Consolidated obligations bonds:
Fair value		98,294,112		(750,739	)		92,103,834		(1,214,426	)
Economic		429,500		(1,790	)		339,500		(1,919	)
Total		98,723,612		(752,529	)		92,443,334		(1,216,345	)
Intermediary positions:
Intermediaries		486,327		234			406,168		430
Total		486,327		234			406,168		430
Total notional and fair value	$	172,155,203	$	(493,265	)	$	164,815,772	$	(1,102,340	)
Total derivatives excluding accrued interest			$	(493,265	)			$	(1,102,340	)
Accrued interest				28,257					41,450
Net derivative balance			$	(465,008	)			$	(1,060,890	)
Net derivative assets balance			$	247,494				$	162,492
Net derivative liabilities balance				(712,502	)				(1,223,382	)
Net derivative balance			$	(465,008	)			$	(1,060,890	)

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The Bank measures interest-rate risk exposure by various methods, including calculating the duration of assets, liabilities, and equity under various scenarios. The primary tools the Bank currently uses to manage its market-risk exposure are multiscenario duration measurements and policy limitations. The Bank evaluates and manages both the asset-liability duration gap and the duration of equity on a regular basis. The table below reflects the Bank’s duration exposure measurements as calculated in accordance with the Bank’s RMP.

Duration Exposure

(In months)

	As of September 30, 2006				As of December 31, 2005
	Up 200 Basis Points	Current	Down 200 Basis Points		Up 200 Basis Points	Current	Down 200 Basis Points
Assets	7.3	7.1	5.1		7.4	7.2	4.0
Liabilities	6.6	6.6	5.4		6.7	6.9	5.8
Equity	23.4	19.2	(1.4	)	25.3	15.0	(37.0	)
Duration gap	0.7	0.5	(0.3	)	0.7	0.3	(1.8	)

As shown in the table above, as of September 30, 2006, the Bank’s duration of equity was slightly higher than at December 31, 2005 due to general increases in interest rates. The Bank’s base-case duration gap was slightly higher than at December 31, 2005 due to the Bank’s asset duration lengthening due to an increase in interest rates while the Bank’s duration of liabilities declined as liabilities rolled down the maturity curve.

In addition to the +/- 200 basis point shifts required by the Bank’s RMP, management has determined that it is prudent to consider interest-rate movements of a lesser magnitude to better determine the Bank’s interest rate sensitivity. The table below shows duration exposure to increases and decreases in interest rates in 50 basis-point increments as of September 30, 2006.

Additional Duration Exposure Scenarios

(In months)

	As of September 30, 2006
	Up 150 Basis Points	Up 100 Basis Points	Up 50 Basis Points	Current	Down 50 Basis Points	Down 100 Basis Points	Down 150 Basis Points
Assets	7.4	7.4	7.3	7.1	6.8	6.2	5.5
Liabilities	6.7	6.8	6.7	6.6	6.2	5.8	5.5
Equity	22.1	21.6	20.6	19.2	21.1	14.7	6.1
Duration gap	0.7	0.6	0.6	0.5	0.6	0.4	0.0

Another way the Bank analyzes its interest-rate risk and market exposure is by evaluating the theoretical market value of equity. The market value of equity represents the net result of the present value of future cash flows discounted to arrive at the theoretical market value of each balance sheet item. By using the discounted present value of future cash flows, the Bank is able to factor in the various maturities of assets and liabilities, similar to the duration analysis discussed above. The difference between the market value of total assets and the market value of total liabilities is the market value of equity.

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Market Value of Equity

	As of September 30, 2006						As of December 31, 2005
	Up 200 Basis Points		Current		Down 200 Basis Points		Up 200 Basis Points		Current		Down 200 Basis Points
	(In millions)
Assets	$	143,260	$	145,025	$	146,521	$	142,109	$	143,901	$	145,253
Liabilities		137,377		138,929		140,295		136,377		137,959		139,395
Equity		5,883		6,096		6,226		5,732		5,942		5,858

Under the Bank’s RMP, the Bank must maintain its duration of equity within a range of +60 months to –60 months, assuming current interest rates, and within a range of +84 months to –84 months, assuming an instantaneous parallel increase or decrease in market interest rates of 200 basis points. Market value of equity must not decline by more than 25 percent, assuming an immediate, parallel, and sustained interest-rate shock of 200 basis points in either direction. If duration of equity or market value of equity is approaching the boundaries of these ranges, management will initiate remedial action or review alternative strategies at the next meeting of the Finance Committee of the board of directors. Remedial action could include, but is not limited to, exercising options on short-term debt and issuing long-term debt, entering into pay-fixed interest-rate swaps, or purchasing interest-rate caps.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Bank’s Chief Executive Officer, the Controller and the Director of Accounting Operations (the “Certifying Officers”) are responsible for establishing and maintaining a system of disclosure controls and procedures designed to ensure that information required to be disclosed by the Bank in the reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “1934 Act”), is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. The Bank’s disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Bank in the reports that it files or submits under the 1934 Act is accumulated and communicated to the Bank’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the Bank’s disclosure controls and procedures, the Bank’s Certifying Officers recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

As of September 30, 2006, the Bank’s Certifying Officers have evaluated the effectiveness of the design and operation of its disclosure controls and procedures. Based on that evaluation, they have concluded that the Bank’s disclosure controls and procedures were not effective for the reasons more fully described below related to the unremediated material weakness in the Bank’s internal control over financial reporting.

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Internal Control Material Weakness

As of December 31, 2005, management concluded that the Bank did not maintain effective controls over the classification of certain cash flows in the statement of cash flows. Specifically, the Bank did not classify properly amounts related to debt issuance costs and customer deposit accounts in the financing activities section of the cash flow statement as required by generally accepted accounting principles. This control deficiency resulted in the restatement of the Bank’s annual financial statements for the years ended December 31, 2004 and 2003. Additionally, this control deficiency could result in a misstatement of the cash flows that would cause a material misstatement of the Bank’s financial statements. Accordingly, management determined that this control deficiency constituted a material weakness.

Remediation

The Bank has taken the following actions to address the material weakness in the statement of cash flows:

• The Bank has added more detailed descriptions and information to spreadsheet procedures related to the preparation of the statement of cash flows, such as detailing components of cash flow items that tie to the Bank’s general ledger groups, thus providing a better means of preparing, reviewing and auditing the statement of cash flows.

• As part of its focus on enhancing the procedures related to the preparation of the statement of cash flows, the Bank has created a source list detailing where the information is sourced for each line item of the cash flow statement, to aid in the preparation and review of the sources for the cash flow items. The Bank also utilizes new checklists on a quarterly basis specific to the preparation of the statement of cash flows.

• The Bank has compiled a document centralizing all of the accounting literature related to preparing the statement of cash flows. The Bank implemented training programs and providing literature for staff who aid in the preparation of the statement of cash flows.

• The Bank has documented the detailed process flows and control evaluations that will be monitored on a quarterly basis regarding the preparation of the statement of cash flows.

Management has taken the actions described above, which it believes addresses the material weakness related to the classification of certain cash flows in the statement of cash flows. Testing the effectiveness of these controls is expected to be completed as part of the year-end procedures. As a result, management will not be able to conclude on the remediation until that time.

Internal Control Over Financial Reporting

For the third quarter of 2006, there were no changes in the Bank’s internal control over financial reporting that have affected materially, or are reasonably likely to affect materially, the Bank’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Bank may be subject to various legal proceedings arising in the normal course of business. After consultation with legal counsel, management is not aware of any such proceedings that might result in the Bank’s ultimate liability in an amount that will have a material effect on the Bank’s financial condition or results of operations.

Item 1A. Risk Factors

For discussion of the Bank’s risk factors, see “Item 1A. Risk Factors” in the Bank’s Form 10. There have been no material changes from those risk factors previously disclosed in the Bank’s Form 10.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

3.1	Restated Organization Certificate of the Federal Home Loan Bank of Atlanta, incorporated by reference to Exhibit 3.1 to the Bank’s Registration Statement on Form 10 filed with the Securities and Exchange Commission on March 17, 2006.
3.2	Revised and Restated Bylaws of the Federal Home Loan Bank of Atlanta, incorporated by reference to Exhibit 3.2 to the Bank’s Form 8-K filed with the Securities and Exchange Commission on September 27, 2006.
10.3	The Federal Home Loan Bank of Atlanta Credit and Collateral Policy, as amended.
31.1	Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Controller pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3	Certification of the Director of Accounting Operations pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the President and Chief Executive Officer, Controller and Director of Accounting Operations pursuant to 18 U.S.C. Section 135, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

	Federal Home Loan Bank of Atlanta
Date: November 14, 2006	By	/s/ Raymond R. Christman
	Name:	Raymond R. Christman
	Title:	President and Chief Executive Officer

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EX-10.3

Exhibit 10.3

Credit and Collateral Policy

CREDIT AND COLLATERAL POLICY

CREDIT LIMIT

The Bank establishes a credit limit for each borrower. The credit limit is referred to in terms of a percentage of the borrower’s total obligations to the Bank (including the face amount of outstanding letters of credit, the principal amount of outstanding advances and the total exposure of the Bank to the borrower under any derivative contract) to its total assets. Generally, this limit shall not exceed 50 percent. However, the Credit and Member Services Committee of the Bank’s Board of Directors, or a successor committee or other appropriate committee empowered by the Board of Directors, may approve a higher limit in its discretion.

The Bank determines the credit limit of a borrower, in its sole and absolute discretion, by evaluating a wide variety of factors, including, but not limited to, the borrower’s overall creditworthiness and collateral management practices. Set forth below, for illustrative purposes only, are typical minimum eligibility requirements for higher credit limits. This list is not exhaustive, however, and the Bank, in its sole discretion, may impose other requirements in individual cases.

Credit limits of 30 percent or less are generally approved by Bank management in the Credit and Collateral Services department. Credit limits in excess of 30 percent must be approved by the Bank’s Credit and Collateral Committee. In connection with approving a specified credit limit, the Bank may ask for additional information relating to the borrower, including, but not limited to, its liquidity management policies and alternative funding sources.

A borrower’s eligibility for a credit limit in excess of 30 percent is subject to its meeting each of the following requirements:

• Composite CAMELS rating of 1 or 2 (including an Asset Quality component rating of 1 or 2)

• If CAMELS rating is older than 12 months, LACE^® rating of C+ or better

• Satisfactory Collateral Verification Review (CVR)¹ in the prior 12 months

In addition to the preceding requirements, a borrower’s eligibility for a credit limit in excess of 40 percent is subject to its meeting each of the following requirements:

• Ability to provide the Bank with sufficient periodic loan level detail for pledged mortgage collateral

• Either (i) the borrower has a class of equity registered with the Securities and Exchange Commission (SEC) traded on a national exchange or a rating assigned to the Borrower by one of the Nationally Recognized Statistical Rating Organizations (NRSROs), (ii) the borrower is a significant subsidiary of a company which meets the requirements of clause (i), or (iii) the borrower agrees to pledge as collateral to the Bank securities with a Lendable Collateral Value (LCV) equal to the principal amount of all obligations to the Bank that exceeds 40 percent of the borrower’s total assets

¹ Refer to the Collateral Verification Review section of this Guide for additional information.

Credit and Collateral Policy

Certain borrowers that are part of a larger financial institution and meet the following requirements are eligible for a credit limit in excess of 50 percent, subject to approval by the Bank’s Credit and Collateral Committee:

• The borrower is wholly-owned, directly or indirectly, by an entity (Parent) whose primary regulator is the Federal Reserve Board of Governors or the Office of Thrift Supervision

• The Parent is registered with the SEC, has a class of equity securities traded on a national exchange, has total assets in excess of $100,000,000,000 and is rated A (or equivalent) or better by each of the NRSROs

• The borrower’s current CAMELS rating is 2 or better

• The borrower has pledged Qualifying Collateral with a Lendable Collateral Value (LCV) equal to the Collateral Maintenance Level that consists entirely of Residential First Mortgage Collateral, Securities, Bank Deposits or Cash

• The total obligations of the borrower to the Bank are equal to no more than 20 percent of the total consolidated assets of the Parent

• The borrower has granted to the Bank a security interest in all of the Residential First Mortgage Collateral owned by the borrower

• The borrower provides to the Bank at such intervals as required by the Bank such loan level detail with respect to the Residential First Mortgage Collateral as necessary for the Bank to grant an LCV for such collateral equal to 90 percent of its market value

Credit and Collateral Policy

CONVERTIBLE ADVANCE PROGRAM LIMIT

The Bank has established a limit on the amount of Convertible advances available to each borrower. Generally, Convertible advances may not exceed 15 percent of the borrower’s total assets.² Convertible advances that are no longer subject to conversion are excluded from the limit.

The Bank has established criteria for the consideration of an exception to the 15 percent Convertible advances limit. The Bank shall only consider for the exception any borrower that is at or near the 15 percent Convertible advances limit. A borrower that meets the following criteria shall qualify for consideration of a maximum limit on Convertible advances of up to 20 percent of the borrower’s total assets:

• Composite CAMELS rating of 1 or 2

• Core capital (less the net present value of outstanding Convertible advances) greater than 5 percent of total assets

• Two-quarter return on assets, before extraordinary items, equal to or greater than .80 percent of total assets

• Non-current assets plus other real estate owned less than 1 percent of total assets

In the event the borrower fails to meet one or more of these criteria, the borrower will not be eligible to request additional Convertible advances until the percentage of Convertible advances to total assets is below 15 percent. Additionally, the borrower will have to be re-approved for a Convertible advance limit higher than the Bank’s standard 15 percent limit once it meets the criteria outlined above.

PREPAYMENT POLICY

Any advance with an interest rate that is fixed during any period or interval normally shall be subject to a prepayment fee in the event of full or partial repayment of advance principal prior to maturity or the expiration of any interim interest rate period. The prepayment provisions applicable to each advance shall be set forth in the confirmation for that advance.

Adjustable Rate Credit Advances

Adjustable Rate Credit (ARC) advances normally shall be subject to a flat fee of 25 basis points per annum. The Bank normally will not assess a prepayment fee on an ARC advance that is restructured in whole prior to its stated maturity date so long as (a) the stated maturity date of the restructured advance falls on or after the stated maturity date of the original advance and (b) the interest rate

² CAMELS 3 rated members are subject to a 10 percent of assets limit on Convertible advances, and CAMELS 4 and 5 rated members may not access Convertible advances. De novo institutions are limited to Convertible advances not in excess of 50 percent of such institution’s credit availability with the Bank.

Credit and Collateral Policy

spread (i.e., the spread to the applicable rate index) on the restructured advance is equal to or greater than the spread on the original advance. In addition, prior to funding, a borrower may elect to purchase an option to prepay an ARC advance on any interest-reset date without a fee.

Fixed Rate Advances

Fixed rate advances (other than Affordable Housing Program (AHP) and Economic Development and Growth Enhancement Program (EDGE) fixed rate advances) normally shall be subject to a non-symmetrical prepayment fee equal to the present value of the daily lost cash flow to the Bank, based upon the difference between the contract rate on the advance and the rate for a new advance of the same type with the same remaining maturity; discounted at the current offering rate. For advances granted prior to May 23, 1994, the rate used to calculate the prepayment fee shall be the posted rate on the date of prepayment for advance amounts between $1 million and $4,999,999. If a fixed rate advance was granted on or after May 23, 1994, and it was eligible for cost-based pricing, the rate used to calculate the prepayment fee shall be the posted rate on the date of prepayment that corresponds to the original advance amount.

The minimum prepayment fees for fixed rate advances (other than AHP and EDGE fixed rate advances) shall be as follows:

1. If the remaining maturity of the advance is 12 months or less.	The greater of the present value-based fee or 12.5 advance basis points per annum on the prepaid amount.
2. If the remaining maturity of the advance exceeds 12 months.	The greater present value-based fee or a flat fee of 25 basis points on the prepaid amount

The calculation of the prepayment fee for any fixed rate Principal Reducing Credit advances (including those under AHP and EDGE) shall take into account future scheduled principal reductions.

AHP advances granted after January 1, 1998 and EDGE advances granted before March 25, 2005, shall be subject to a prepayment fee equal to the present value of the daily lost cash flow to the Bank, based upon the difference between the cost of funds originally used to calculate the interest subsidy incorporated into the advance and the rate for a new unsubsidized fixed rate advance of comparable size with the same remaining maturity, discounted at the current offering rate. For an illustration of how this prepayment fee is calculated, please see Example # 1 below.

EDGE advances granted on or after March 25, 2005 shall be subject to a prepayment fee equal to the present value of the daily lost cash flow to the Bank, based upon the difference between the rate, as of the date of the EDGE advance, for an unsubsidized fixed rate advance of comparable size with the same maturity and the rate, as of the date of prepayment, for a new unsubsidized fixed rate advance of comparable size with the same remaining maturity, discounted at the current offering rate. For an illustration of how this prepayment fee is calculated, please see Example # 2 below.

All prepayment requests received after 11 a.m. (Eastern time) for advances with remaining maturities up to 12 months, or after 3 p.m. (Eastern time) on the previous business day, for advances with remaining maturities greater than 12 months, may be deferred until the following day.

Credit and Collateral Policy

Example #1

Assume a borrower obtains a fixed rate AHP advance having the original terms set forth below:

Date of advance	—	June 1, 2005
Principal amount	—	$100,000
Scheduled maturity	—	5 years
Contract interest rate	—	2.00 percent
Bank’s cost of funds on June 1, 2005	—	4.00 percent
Payment terms	—	No amortization prior to maturity, interest payable annually

If, on June 1, 2009, the borrower were to prepay the entire $100,000 advance in full, and the Bank’s offering rate as of that date for a new unsubsidized fixed rate advance of comparable size with the same remaining maturity (i.e., one year) were 3.00 percent, then the amount of the prepayment fee would be $985.11, calculated as set forth below:

Lost cash flow = {$100,000 * [0.04 – 0.03]} = $1,000

Present value (as of prepayment date) of $1,000 lost cash flow, discounted on a daily basis at an annual rate of 3.00 percent = $985.11

Example #2

Assume a borrower obtains a fixed rate EDGE advance having the original terms set forth below:

Date of advance	—	June 1, 2005
Principal amount	—	$100,000
Scheduled maturity	—	5 years
Contract interest rate	—	2.00 percent
Bank’s unsubsidized market rate on June 1, 2005	—	4.25 percent
Payment terms	—	No amortization prior to maturity, interest payable annually

Credit and Collateral Policy

If, on June 1, 2009, the borrower were to prepay the entire $100,000 advance in full, and the Bank’s offering rate as of that date for a new unsubsidized fixed rate advance of comparable size with the same remaining maturity (i.e., one year) were 3.00 percent, then the amount of the prepayment fee would be $1,231.39, calculated as set forth below:

Lost cash flow {$100,000 * [0.0425—0.03]} = $1,250

Present value (as of prepayment date) of $1,250 lost cash flow, discounted on a daily basis at an annual rate of 3.00 percent = $1,231.39

Structured Advances with Embedded Options

Prepayment fees for structured advances with embedded options (i.e., Convertible advances) shall be the inverse of the value of any hedging instruments entered into by the Bank in connection with the funding of the advance, as detailed in the confirmation for the advance.

Daily Rate Credit Advances

There are no prepayment fees for Daily Rate Credit advances.

Credit and Collateral Policy

CREDIT AND COLLATERAL MATRIX

The Credit and Collateral Matrix (Matrix) is one of the tools used by the Bank to implement a risk-focused approach to credit and collateral underwriting and monitoring. The Bank assigns each borrower a Matrix category according to the relative amount of credit and/or collateral risk such borrower poses to the Bank. A borrower’s Matrix category is the primary factor the Bank uses in determining the borrower’s eligibility to pledge certain types of eligible collateral, its method of pledging collateral, and the scope and frequency of its CVRs.

Credit and Collateral Policy

COLLATERAL MONITORING AND COMPLIANCE

Each borrower is responsible for monitoring its compliance with the Bank’s collateral requirements at all times. The Bank’s CVR process, discussed in detail below, supplements this responsibility. A borrower must secure all advances (and other Liabilities) with Qualifying Collateral³ at all times. The borrower’s collateral position must be in compliance with the requirements of the Credit and Collateral Policy, prior to the funding of an advance. Accordingly, each borrower should establish sufficient Qualifying Collateral prior to participating in the Bank’s credit programs.

The Bank reserves the right to accept, reject or ascribe such value to eligible collateral as deemed necessary or appropriate to protect the security interest of the Bank, based upon the borrower’s creditworthiness, the quality of the collateral, or other factors. The Bank must be able to perfect its security interest in all collateral and shall, as appropriate, file UCC-1 financing statements on collateral pledged to the Bank.

COLLATERAL VERIFICATION REVIEWS

Periodically, the Bank, or any entity retained by the Bank, will review the collateral pledged to the Bank to make sure that the collateral reported to the Bank is Qualifying Collateral. The Bank also analyzes the borrower’s documentation and administration processes and controls. The Bank may require such verification through one or both of the following:

• On-Site Verification Review (OVR) conducted at the physical premises of the borrower

• Remote Verification Review (RVR) conducted at centralized locations using copies of documents in the borrower’s files

The Bank determines the frequency and type of CVR required for a particular borrower based on its evaluation of various risk factors including, but not limited to:

• The amount of the Bank’s exposure to the borrower

• Potential concerns regarding the borrower’s asset quality

• The borrower’s ratio of advances-to-assets

• The amount of collateral pledged by the borrower

• The borrower’s prior CVR results

³ See Qualifying Collateral section of the Policy.

Credit and Collateral Policy

EXCEPTION RATES FOR COLLATERAL VERIFICATION REVIEWS AND EXTRAPOLATION

The Bank has established exception rates for CVRs to assist in evaluating and managing the potential risks that may exist in a borrower’s pledged collateral portfolios. The CVR exception rate is used to determine the frequency of future CVRs, in conjunction with the other factors described above.

The relevant loan portfolio for which a borrower is unable to resolve exceptions noted during a CVR will be extrapolated. Through the extrapolation process, the Bank reduces the amount of a borrower’s eligible collateral based on the exception rate of each loan portfolio reviewed. The Bank considers an exception material if it would hinder the Bank’s ability to either perfect its security interest in the loan or sell the loan in the event of liquidation.

QUALIFYING COLLATERAL

The Bank’s Advances and Security Agreement requires each borrower to maintain at all times Qualifying Collateral that has a Lendable Collateral Value (LCV) at least equal to the Collateral Maintenance Level.⁴ Qualifying Collateral means collateral eligible to secure advances and other Liabilities of the borrower to the Bank. The borrower’s capital stock and deposits in a deposit account do not constitute Qualifying Collateral.

Qualifying Collateral includes the following types of whole mortgage loans: Residential First Mortgage Collateral, Multifamily Mortgage Collateral, Home Equity Lines of Credit (HELOCs) and Second Mortgage Collateral, and Commercial Mortgage Collateral. In order for the mortgage collateral to serve as Qualifying Collateral, it must meet each of the following requirements:

• It has not been identified as held for sale by the borrower (except exclusively to support advances under the Loans Held For Sale program)

• It does not secure an indebtedness on which any director, officer, employee, attorney or agent of the borrower or the Bank is personally liable

• It is not currently past due more than 30 days

• It has not been classified as substandard, doubtful, or loss by the borrower’s regulator or its management

• Any individual borrower on any underlying loan collateral is legally authorized to be in the United States

A borrower pledging mortgage collateral must maintain, at all times, possession of the original note and a copy of the recorded mortgage for such collateral. Loans may be held by a third-party custodian subject to terms and conditions acceptable to the Bank, as outlined in the Advances and Security Agreement.

⁴ See Collateral Maintenance Level and Lendable Collateral Value sections.

Credit and Collateral Policy

Additionally, any mortgage loan for which any of the legal documents are missing or which demonstrate inconsistencies, errors or omissions that could impact the credit quality of the collateral, or the Bank’s ability to perfect its security interest in the collateral, may not be included in the pool of Qualifying Collateral. The additional requirements for each type of mortgage collateral to constitute Qualifying Collateral are set forth below.

Residential First Mortgage Collateral

Residential First Mortgage Collateral consists of fully-disbursed (not a construction loan or line of credit), whole first mortgages and deeds of trusts, secured by a first lien on improved one-to-four unit single-family dwellings, including condominiums, planned unit developments (PUDs), town homes and manufactured/mobile homes, so long as such homes are treated as real estate under applicable state law, as demonstrated by an ALTA Form 7 endorsement to a title insurance policy, an acceptable legal opinion or other evidence acceptable to the Bank.

For Residential First Mortgage Collateral to constitute Qualifying Collateral, it must meet each of the following criteria:

• The loan is wholly-owned by the borrower and is free and clear of all liens and encumbrances, including any participation interests

• The loan documents are under the control of the borrower

• The loan has a signed borrowing resolution if the obligor is a corporation, partnership, limited liability corporation, etc.

• The current loan-to-value ratio is less than or equal to 100 percent of the value of the underlying real estate collateral, including the value of any other loans secured by such real estate collateral (Note: To the extent that two or more loans secured by the same underlying collateral exceed the 100 percent loan-to-value ratio, the Bank may accept one or more of such loans as Qualifying Collateral as long as the accepted loans do not exceed such ratio)

• The loan collateral is not cross-collateralized with any loan not pledged to the Bank

• The underlying loan transaction conforms to the requirements of the Bank’s Guidelines to Promote Responsible Lending, as described herein

Multifamily Mortgage Collateral

Multifamily Mortgage Collateral consists of fully disbursed (not a construction loan or line of credit) first mortgage loans, secured by improved residential multifamily (5 or more units) real estate.

For Multifamily Mortgage Collateral to constitute Qualifying Collateral, it must meet each of the following criteria:

• The loan is owned by the borrower and is free and clear of all liens and encumbrances (except for minority, non-controlling participating interests)

Credit and Collateral Policy

• The loan documents are under the control of the borrower

• The loan has a signed borrowing resolution if the obligor is a corporation, partnership, limited liability corporation, etc.

• The loan is not guaranteed by any entity that retains control in the event of default (e.g., Small Business Administration (SBA), United States Department of Agriculture (USDA), etc.)

• The loan is not secured by a leasehold interest, unless the ground lease is subordinate to the mortgage, and the remaining lease term is equal to or greater than the loan term

• The current loan-to-value ratio is less than or equal to 85 percent of the value of the underlying real estate collateral, including the value of any other loans secured by such real estate collateral (Note: To the extent that two or more loans secured by the same underlying collateral exceed the 85 percent loan-to-value ratio, the Bank may accept one or more of such loans as Qualifying Collateral as long as the accepted loans do not exceed such ratio)

• The loan collateral is not cross-collateralized with any loan not pledged to the Bank

Commercial Mortgage Collateral

Commercial Mortgage Collateral consists of fully disbursed (not a construction loan or line of credit) first mortgages, secured by improved office, retail, hotel/motel or industrial/warehouse properties.

For Commercial Mortgage Collateral to constitute Qualifying Collateral, it must meet each of the following criteria:

• The loan is owned by the borrower and is free and clear of all liens and encumbrances (except for minority, non-controlling participation interests)

• The loan documents are under the control of the borrower

• The loan has a signed borrowing resolution if the obligor is a corporation, partnership, limited liability corporation, etc.

• The loan is not guaranteed by any entity that retains control in the event of default (e.g., SBA, USDA, etc.)

• The loan is not secured by a leasehold interest, unless the ground lease is subordinate to the mortgage and the remaining lease term is equal to or greater than the loan term

• The current loan-to-value ratio is less than or equal to 85 percent of the value of the underlying real estate collateral, including the value of any other loans secured by such real estate collateral (Note: To the extent that two or more loans secured by the same underlying collateral exceed the 85 percent loan-to-value ratio, the Bank may accept one or more of such loans as Qualifying Collateral as long as the accepted loans do not exceed such ratio)

• The loan collateral is not cross-collateralized with any loan not pledged to the Bank

• The loan is not secured by a Special Purpose Property, as described in Appendix A.

Credit and Collateral Policy

Home Equity Lines of Credit (HELOC) and Second Mortgage Collateral

HELOC/Second Mortgage Collateral consists of home equity lines of credit and second mortgages, secured by residential real property on which a 1-4 unit single-family dwelling is located, including condominiums, PUDs, town homes and manufactured/mobile homes, so long as such homes are treated as real estate under applicable state laws, as demonstrated by an ALTA Form 7 endorsement to a title insurance policy, an acceptable legal opinion or other evidence acceptable to the Bank.

For HELOC/Second Mortgage Collateral to constitute Qualifying Collateral, it must meet each of the following criteria:

• The loan is wholly-owned by the borrower and is free and clear of all liens and encumbrances, including any participation interests

• The loan documents are under the control of the borrower

• The combined loan balance (first and second mortgage) does not exceed 100 percent of the value of the underlying real estate collateral, including the value of any other loan secured by such real estate collateral

• The loan collateral is not cross-collateralized with any loan not pledged to the Bank

• The loan secures a first or second lien on the underlying real estate collateral

• The mortgage is to a borrower that is an individual or individuals

• The underlying loan transaction conforms to the requirements of the Bank’s Guidelines to Promote Responsible Lending, as described herein

BANK DEPOSIT COLLATERAL OR CASH

A borrower’s deposit in the Bank constitutes Qualifying Collateral only if held in a segregated, blocked account pledged to the Bank. Cash held in the borrower’s deposit account does not constitute Qualifying Collateral. The Bank’s lien on the borrower’s deposit accounts shall not include any monies held in connection with a custodial mortgage account.

SECURITIES

The following types of securities constitute Qualifying Collateral.

Government and Agency Securities Collateral

Treasury (i.e., debt instruments issued by the U.S. Treasury):

• Treasury Bill – A short-term, discounted government debt instrument with a maturity of one year or less

Credit and Collateral Policy

• Treasury Note – A medium-term government debt instrument, issued at par, with a maturity of one to 10 years

• Treasury Bond – A long-term government debt instrument, issued at par, with a maturity of at least 10 years

Agency (i.e., securities issued by certain institutions and government sponsored enterprises (e.g., Fannie Mae, Freddie Mac, FHLBanks, Ginnie Mae):

• Discount Note – An unsecured general corporate obligation, issued at a discount that has an original term of less than one year

• Debenture Note or Bond – An unsecured note or bond that has an original term of one year or more

• Agency Mortgage-Backed Security (MBS) Passthrough – A debt instrument that is collateralized by a pool of residential or multifamily real estate loans. The mortgage payments of the individual real estate assets are used to pay principal and interest on the bond

• Agency Collateralized Mortgage Obligation (CMO) or Real Estate Mortgage Investment Conduit (REMIC) – A type of mortgage-backed security that pays a specified share of the cash flows from an underlying mortgage pool

• SBA pool – A debt instrument issued by the SBA, a government agency, which is collateralized by SBA-guaranteed loans

Private Label Non-Agency MBS

Private label non-agency MBS constitute Qualifying Collateral if they are rated AA (or equivalent) or better.

Asset Backed Securities Secured by HELOC/Second Mortgage Loan Collateral

The senior tranche of private label and agency securities backed by home equity loans and lines of credit constitutes Qualifying Collateral if it is rated AAA (or equivalent) and a market price and prospectus is readily obtainable.

INELIGIBLE SECURITIES

Securities that do not constitute Qualifying Collateral include, but are not limited to:

• Agency or non-agency security tranche types:

• Interest Only (IO)

• Principal Only (PO)

• Inverse Floaters (INV)

• Accrual Bonds (Z tranche)

• Residual

Credit and Collateral Policy

• Municipal Bonds (except to the extent such bonds otherwise qualify as MBS)

• Subordinate or Mezzanine

• Corporate Bonds

• Commercial Paper

• Preferred and Common Stock

• Any security for which pricing is not readily available to the Bank

COLLATERAL MAINTENANCE LEVEL AND LENDABLE COLLATERAL VALUE

A borrower must maintain sufficient Qualifying Collateral, when discounted to the LCV, in an amount equal to at least 100 percent of the outstanding amounts of all advances (and other Liabilities of the borrower to the Bank). This is the Collateral Maintenance Level. The Bank reserves the right to specify such other percentage for any borrower as it may deem necessary in the case of such borrower from time to time.

The Bank assigns an LCV to pledged Qualifying Collateral. This is a discount to its otherwise prescribed value. For each collateral type and pledging method, the Bank discounts the unpaid principal balance (UPB), market value (MV), or other defined value of the pledged collateral, as determined by the Bank, to calculate the amount that may be borrowed against the pledged collateral (the LCV). The Bank reserves the right to adjust the discount applied to the pledged collateral for any borrower as it may deem necessary in the case of such borrower from time to time. The current LCVs for Qualifying Collateral are provided below in the section entitled “Lendable Collateral Value for Qualifying Collateral.”

COLLATERAL REPORTING AND PLEDGE METHODS

The Advances and Security Agreement provides for a pledge by the borrower of its entire portfolio of Residential First Mortgage Collateral, Multifamily Mortgage Collateral, HELOC and Second Mortgage Collateral, and Commercial Mortgage Collateral to secure advances (and other Liabilities) under the Agreement. However, a Matrix 1 or 2 borrower may be exempted from pledging Multifamily Mortgage Collateral, Commercial Mortgage Collateral and HELOC and Second Mortgage Collateral on a blanket basis, upon request of the borrower. A borrower may be exempted from the requirement to provide a blanket lien on its Residential First Mortgage Collateral, or it may be permitted to pledge only specific loans within any other mortgage collateral portfolio, only upon specific approval by the Bank.

Matrix 1 and 2 Members

A Matrix 1 or 2 borrower that has pledged Residential First Mortgage Collateral pursuant to a blanket lien must submit a Qualifying Collateral Report (QCR) on a quarterly basis within 30 days of each calendar quarter end. The Bank, in its sole discretion, may require more frequent reporting.

Credit and Collateral Policy

The LCV for Residential First Mortgage Collateral pledged pursuant to a blanket lien by a Matrix 1 or 2 borrower shall be 80 percent of the unpaid principal balance of such collateral.

The LCV for Residential First Mortgage Collateral pledged pursuant to a blanket lien by a Matrix 1 or 2 borrower that provides additional loan level detail shall be 90 percent of the market value of such collateral, as determined by the valuation model utilized by the Bank, in its sole discretion.

The Bank requires a Matrix 1 or 2 borrower that has been approved to provide a specific pledge of individual loans in its Residential First Mortgage Collateral portfolio to submit, at a minimum, quarterly status updates for such specifically pledged loan collateral. The Bank shall ascribe an LCV of 85 percent of the market value for such specifically pledged Residential First Mortgage Collateral.

Reduced Title Documentation

The Bank generally requires that in order for Residential First Mortgage Collateral to be Qualifying Collateral such collateral must include post-closing lien verification, such as title insurance, title opinion or post-closing title search. To the extent that a Matrix 1 or 2 borrower has not conducted a post-closing lien verification for any Residential First Mortgage Collateral. The Bank, in its discretion, may accept such collateral as Qualifying Collateral, but shall reduce the LCV for such collateral by an additional ten percent from the otherwise applicable LCV for such collateral. Matrix 3 and 4 borrowers must perform post-closing lien verification for all Residential First Mortgage Collateral in order for such collateral to be Qualifying Collateral.

Matrix 1 or 2 borrowers must specifically identify all Residential First Mortgage Collateral without post-closing lien verification to the Bank and provide any additional information with respect to such collateral as the Bank may require. Prior to acceptance by the Bank as Qualifying Collateral, and throughout the on-going CVR process, the borrower must perform post-closing title searches on at least 50 of the loans which did not originally include post-closing title searches. If more than 10 percent of such sample indicates that the lien of the borrower is not first priority, the Bank reserves the right to further reduce the LCV on such collateral, or to refuse to accept such collateral as Qualifying Collateral.

Any Residential First Mortgage Collateral without post-closing lien verification must contain the following, at a minimum: lien search performed within 45 days of loan closing, borrower affidavit stating no liens exist on the property other than those disclosed in the pre-closing title search; and payoff statements and evidence satisfactory to the Bank of payment of all liens disclosed in the pre-closing lien search. In addition, the credit score for the purchaser of the real estate associated with such Residential First Mortgage Collateral must exceed 680 and the loan-to-value ratio for such Residential First Mortgage Collateral must be less than 80 percent.

Matrix 3 and 4 Borrowers

The Bank considers a borrower falling into Matrix category 3 or 4 less creditworthy. A Matrix 3 or 4 borrower must provide the Bank with a blanket pledge on all types of Qualifying Collateral unless (1) such borrower has total assets in excess of $250,000,000,000 and (2) the ratio of such borrower’s liabilities to the Bank to such borrower’s total assets does not exceed 10 percent. The Bank, in its discretion, may not require such a blanket pledge from a Matrix 3 or 4 borrower with at least a

Credit and Collateral Policy

CAMELS 3 rating. A Matrix 3 or 4 borrower may also be required to provide increased collateral detail or delivery of collateral, in the sole discretion of the Bank. Any Matrix 1 or 2 borrower that becomes a Matrix 3 or 4 borrower in the future shall become immediately subject to the provisions governing Matrix 3 or 4 borrowers.

A Matrix 3 or 4 borrower must provide a quarterly or monthly QCR within 30 days of each calendar quarter end or month end, as applicable and, in the Bank’s sole discretion, may be required to provide increased collateral detail or deliver collateral. A borrower with a CAMELS rating of 4 or 5 must deliver its collateral and must provide monthly loan status updates (within the timeframe specified in “Status Reports” below).

The LCV for Matrix 3 borrowers pledging Residential First Mortgage Collateral shall be 75 percent of the unpaid principal balance. The LCV for Matrix 4 borrowers pledging Residential First Mortgage Collateral shall be 67 percent of the unpaid principal balance or lower, in the Bank’s sole discretion. This constitutes an effective Collateral Maintenance Level of 150 percent.

Delivery of Physical Collateral Documents

The Bank may require the delivery of pledged mortgage collateral at such times as a borrower falls into Matrix 3 or 4, or such other times as deemed desirable by the Bank. The Bank requires delivery at all times of securities, cash, and participation certificates pledged to the Bank as collateral.

Status Reports

A borrower required to specifically identify or deliver collateral must submit to the Bank, at such times as the Bank may request, a status report with respect to the borrower’s collateral, prepared in form and substance acceptable to the Bank. The status report shall be a written report covering such matters regarding the collateral as the Bank may require, including listings of mortgages and unpaid principal balances thereof, and certifications concerning the status of payments on mortgages and of taxes and insurance on property securing mortgages. The borrower must submit the status report to the Bank within 30 days of each calendar quarter end or month end, as applicable.

COLLATERAL REQUIREMENTS FOR LESS CREDITWORTHY BORROWERS

The Bank reserves the right to manage the credit and collateral requirements for less creditworthy borrowers on a case-by-case basis, including adjusting the LCV and Collateral Maintenance Level for such borrowers.

A borrower is deemed less creditworthy if, in the Bank’s sole discretion and based on its credit underwriting, the borrower’s financial condition has deteriorated or the borrower’s Matrix category is 3 or 4.

Credit and Collateral Policy

The collateral requirements applicable to all CAMELS 4 or 5 rated borrowers, and in the Bank’s sole discretion, other less creditworthy borrowers, are each of the following:

• The borrower must deliver collateral to the Bank

• The borrower must provide monthly QCR and loan status updates, and in the Bank’s sole discretion, it may be required to provide increased collateral detail or deliver collateral

• The borrower may be required to secure existing advances (and other Liabilities) with Bank deposits and/or eligible government and agency securities

• The borrower may be required to collateralize any existing prepayment fees

• The borrower must acceptably collateralize the Bank’s potential exposure arising from its use of the Bank’s cash management services

USE OF OTHER REAL ESTATE RELATED COLLATERAL TO SECURE ADVANCES

The Bank has established a limit on the amount of Other Real Estate Related Collateral (ORERC) that may be utilized by a borrower for purposes of satisfying a borrower’s Collateral Maintenance Level. That limit is 15 percent of the borrower’s total assets. ORERC includes Commercial Mortgage Loans and HELOCs and Second Mortgage Loans. Borrowers that meet each of the following eligibility criteria may utilize ORERC as Qualifying Collateral (subject to the above limit):

• The borrower’s Matrix category is 1 or 2, or, in the Bank’s discretion, has a CAMELS 3 rating

• The borrower provides a blanket lien on all ORERC, or it receives the Bank’s approval not to provide such a blanket lien

• To the extent a CVR has not been performed on the ORERC loan portfolio to be utilized, the Bank may impose additional discounts to the LCV for such collateral

Credit and Collateral Policy

LENDABLE COLLATERAL VALUE FOR QUALIFYING COLLATERAL

The following charts outline the LCV for specific types of Qualifying Collateral:

Cash	Pledging Method	LCV %	Comments
Cash	Delivery	100
Government and Agency Securities Collateral*	Pledging Method	LCV % MV	Comments
U.S. Treasury bills, notes, bonds FHLBank bonds and discount notes Fannie Mae bonds and notes Fannie Mae mortgage-backed securities Freddie Mac participation certificates Freddie Mac bonds and notes Ginnie Mae pass-through securities Ginnie Mae bonds and notes	Delivery	97	Pricing must be available from the Bank’s pricing service.
Agency CMOs and REMICs	Delivery	97
SBA Trust Certificates	Delivery	97	Subject to Bank’s acceptance.
Other Securities Collateral*	Pledging Method	LCV % MV	Comments
Private-Label mortgage-backed securities	Delivery	90	Must be rated AA (or equivalent) or higher by S&P, Moody’s or Fitch. Not all are eligible
Private-Label CMOs and REMICs	Delivery	90	Pricing must be available from the Bank’s pricing service. Not all are eligible
HELOC/Second Mortgage-backed Securities	Delivery	90	Must be rated AAA (or equivalent) or higher by S&P, Moody’s or Fitch. Pricing must be available from the Bank’s pricing service. Not all eligible.

* Derivatives or stripped mortgage-backed securities are not considered eligible collateral.

Credit and Collateral Policy

First Mortgage Collateral	Matrix Category	Pledging Method	LCV** %	Comments
Residential First Mortgage Collateral	1, 2	Blanket	80 of UPB
	1, 2	Blanket with loan level detail	90 of MV
	1, 2	Specific	85 of MV
	3	Blanket	75 of UPB
	4	Blanket	67 of UPB
Multifamily Mortgage Collateral (five or more units)	All	Blanket	50 of UPB

** The LCV may be expressed as an “overcollateralization” requirement (i.e., 150 percent in the case of a Matrix 4 borrower) and may be lower for particular borrowers in the Bank’s sole discretion.

Other Real Estate Related Collateral	Matrix Category	Pledging Method	LCV % UPB	Comments
Home Equity Lines of Credit and Second Mortgage Collateral	1, 2	Blanket	50
	3, 4	Not eligible to pledge
Commercial Mortgage Collateral	1, 2	Blanket	50	Property type eligibility is subject to Bank’s acceptance.
	3, 4	Not eligible to pledge

AFFILIATE COLLATERAL POLICY

An affiliate of a borrower may pledge collateral on behalf of the borrower, provided that the borrower, affiliate and any intermediate holding company have executed an Affiliate Joinder Agreement satisfactory to the Bank. The Bank may accept an affiliate’s pledge of collateral under this policy subject to each of the following conditions:

• The borrower’s Matrix category is 1 or 2 or, in the Bank’s discretion, has a CAMELS 3 rating

• The affiliate is 100 percent owned directly or indirectly by the borrower (Note: In the event the affiliate is a REIT, the borrower may sell non-voting stock in the affiliate to other investors in an amount acceptable to the Bank, so that the affiliate structure meets the requirements of a REIT)

• The affiliate has no outside debt or other liabilities for borrowed money

• The affiliate collateral was previously owned by the borrower and pledged to the Bank prior to being transferred to the affiliate, or such affiliate collateral is purchased with the proceeds of sales of collateral originally meeting the requirements of the first clause in this bullet point

Credit and Collateral Policy

• The borrower and the affiliate comply with the Bank’s documentation and other requirements

In the Bank’s sole discretion, collateral pledged by an affiliate may be subject to an additional collateral discount of no more than 20 percent and no less than 5 percent, if one or more of the following conditions exist:

• The borrower is downgraded to Matrix 3 or 4

• The borrower’s reliance on affiliate collateral is greater than 50 percent of its outstanding advances

COLLATERAL REQUIREMENTS FOR INSURANCE COMPANIES AND DE NOVO INSTITUTIONS

Insurance Companies

Insurance companies borrowing from the Bank are subject to each of the following additional requirements:

• Only Residential First Mortgage Collateral and securities are permitted as Qualifying Collateral

• Securities pledged as Qualifying Collateral shall be subject to a lower LCV than that applied to securities pledged by other borrowers

Insurance companies may enter into pledged account agreements to perfect the Bank’s security interest in securities collateral.

De Novo Institutions

A de novo institution is one that has been in operation for less than two years and does not meet certain other requirements summarized later in this section. A de novo institution may apply for advances from the Bank subject to each of the following conditions:

• It must execute a blanket lien on all types of permitted mortgage collateral

• Advances may not exceed 20 percent of the borrower’s total assets

• Advances secured by ORERC may not exceed 10 percent of the borrower’s total assets

• It must provide a quarterly or monthly QCR, and in the Bank’s sole discretion, it may be required to provide increased collateral detail or to deliver collateral

• A de novo borrower with a CAMELS rating of 4 or 5 must provide monthly loan status updates

Credit and Collateral Policy

An institution is no longer considered to be de novo once it has met all of the following conditions:

• It has been in operation for two or more years

• It has a CAMELS rating of 1 or 2

• It has been profitable in four of the past six operating quarters

• Its reserves/non-performing loans are greater than 60 percent in four of the past six operating quarters

• Its non-performing loans/total loans are less than 5 percent in four of the past six operating quarters

COLLATERAL REQUIREMENTS FOR THE LOANS HELD FOR SALE PROGRAM

Generally, to be eligible to participate in the Loans Held For Sale (LHFS) program, each of the following conditions must be met:

• The borrower’s Matrix category is 1 or 2. Matrix 3 and de novo borrowers may be approved by the Bank, at its discretion. CAMELS 4 or 5 rated borrowers may not access the LHFS program

• The borrower must have satisfactory prior CVR results

• The borrower must have executed the Bank’s Advances and Security Agreement and must not have opted-out of the blanket lien on its Residential First Mortgage Collateral

• All potential purchasers (investors) of the collateral eligible to support LHFS advances must enter into a tri-party agreement with the Bank and the borrower governing the status of the Bank’s security interest in the collateral, the sale of the collateral and the disposition of the proceeds of such sales, or establish a custodial arrangement. No sales of collateral supporting LHFS advances shall be made to any party who has not executed such a tri-party agreement

• The borrower’s investors must be acceptable to the Bank

LCV and Eligibility Criteria

The LCV for collateral under the program shall not exceed 80 percent of the UPB of the eligible collateral reported to secure such advances.

Loans must meet the following criteria to be eligible to support LHFS advances:

• Loans must be fully-disbursed, wholly-owned first mortgage loans secured by a first lien on improved one-to-four unit single family dwellings, including primary residences, second homes and investment properties

• Loans must be underwritten to the guidelines of the borrower’s investor(s)

• Loans must be appropriately identified as being held for sale in the borrower’s periodic financial regulatory reporting

Credit and Collateral Policy

Ineligible Collateral

The following Collateral is not eligible to secure LHFS advances:

• Loans reported to the Bank to support any prior LHFS advances, even if such prior LHFS advances are paid off within 90 days

• Loans pledged for a period greater than 90 days

• Loans that are not fully disbursed

• Revolving lines of credit

• Loans with a loan-to-value ratio greater than 100 percent, based on the lesser of the purchase price or appraised value

• Participation interests in any loan, or loans in which participation interests have been sold

• Loans past due more than 30 days, or adversely classified loans

• Loans pledged to secure any other borrowings

• Loans to any director, officer, any employee, attorney or agent of the borrower or the Bank, or loans held in a third party subsidiary

• Loans with document deficiencies, such as lack of an original note or copy of a recorded mortgage instrument

• Loans that do not conform to the requirements of the Bank’s Guidelines to Promote Responsible Lending, as described in the policy

• Loans secured by mobile or manufactured homes that do not constitute real property under state law

• Loans not meeting any other requirement to be Qualifying Collateral

Monitoring/Periodic Review

• The Bank, in its sole discretion, may conduct periodic CVRs relating to the LHFS program, with or without notice. The Bank will conduct quarterly internal compliance reviews to value the pledged LHFS collateral. The Bank may, in its sole discretion, discontinue a borrower’s participation in the LHFS program at any time.

COLLATERAL REQUIREMENTS FOR DERIVATIVE CONTRACTS

Members must collateralize the exposure to the Bank under any derivative contract when the Bank is the buyer of an interest rate cap or floor. The required collateral must have an LCV equal to not less than 0.5 percent of the notional principal amount of the contract, plus the net exposure to the Bank under the cap or floor. The Bank does not require collateral when the Bank is the seller of an interest rate cap or floor. The member must enter into an ISDA master agreement and schedule with the Bank.

Credit and Collateral Policy

Interest rate swap exposure is included in the calculation of the overall credit limit and must be fully collateralized as outlined below.

• For maturities less than one year: Market value of swap + 0 percent of notional principal of the swap

• For maturities between one and less than five year(s): Market value of swap + .5 percent of the notional principal of the swap

• For maturities greater than five years: Market value of swap + 1.5 percent of the notional principal of the swap

Under certain conditions, the Bank may permit a borrower to enter into an uncollateralized interest rate swap transaction.

LESS CREDITWORTHY, CAPITAL DEFICIENT OR INSOLVENT BORROWERS

Watch List

The Bank uses a “Watch List” to identify and monitor those borrowers that the Bank considers as less creditworthy, or are capital deficient or insolvent. The Bank uses the following criteria to determine whether a borrower should be placed on the Watch List:

• CAMELS rating of 3 or worse;

• LACE^® rating of C or worse;

• Credit Score of 50 or less;

• Weiss Ratings, Inc. rating of D or worse; or

• The borrower is capital deficient, insolvent or otherwise in troubled financial condition, as determined by the Bank

The Bank may exclude a borrower that would otherwise meet the criteria for inclusion on the Watch List, in its discretion, due to factors not addressed by the criteria above. Alternatively, the Bank may include borrowers on the Watch List that do not meet any of the above criteria, if, in the Bank’s discretion, such additional monitoring and oversight is prudent and advisable.

Advances to Less Creditworthy, Capital Deficient and Insolvent Borrowers

The Bank, in its sole discretion, may grant new advances to a less creditworthy borrower. Generally, however, the Bank shall grant new advances, if any, to a less creditworthy borrower subject to each of the following conditions (and any other conditions the Bank may impose in the future):

• The term of the advances shall not exceed 12 months

• Qualifying Collateral must consist of Bank deposits or eligible government and agency securities

• The Bank, in its sole discretion, shall determine the market value of the Qualifying Collateral

Credit and Collateral Policy

The Bank, in its sole discretion, may grant new advances to a borrower that has failed one or more of its regulatory capital requirements (capital deficient borrowers), provided the borrower remains solvent on a tangible capital basis. However, the Bank shall honor a written request from such borrower’s primary federal regulator or insurer to limit or eliminate access to advances. If a borrower’s core capital to assets ratio is 3 percent or less, outstanding letters of credit must be collateralized by a cash deposit or government or agency securities until the letters of credit expire or are surrendered to the Bank by the beneficiary for cancellation.

The Bank shall not grant new advances to a tangibly insolvent borrower unless the borrower’s primary federal regulator or insurer submits a written request that the Bank make such advances, and the Bank, in its sole discretion, elects to grant such advances.

The Bank, in its sole discretion, may renew advances to a tangibly insolvent borrower for a term of up to 30 days. However, the Bank shall honor a written request from such borrower’s primary federal regulator or insurer not to renew such advances. The Bank, in its sole discretion, may renew outstanding advances to a tangibly insolvent borrower for a term greater than 30 days at the written request of the primary federal regulator or insurer.

NON-BORROWER USERS OF BANK SERVICES

If a non-borrower member or housing associate utilizes any Bank product or service that could result in a Liability to the Bank (including, without limitation, standby letters of credit, mortgage purchases, cash management services other than wire transfers, safekeeping, and Affordable Housing Program subsidies) (Covered Services), then such member or housing associate must (a) execute an Advances and Security Agreement, (b) submit a QCR to the Bank on a quarterly basis for each mortgage portfolio pledged, and (c) maintain at all times Qualifying Collateral that has an LCV at least equal to the Collateral Maintenance Level, in each case in accordance with the requirements for borrowers. The requirements set forth in the immediately preceding sentence shall not apply to a member or housing associate that (i) only holds Bank capital stock and/or maintains a balance in its Daily Investment Account at the Bank and (ii) does not engage in any of the Covered Services.

FEES

The Bank may assess reasonable fees and charges to cover the Bank’s costs, including overhead, relating to the receipt, holding, redelivery and reassignment of the borrower’s collateral, as required by the Bank. The Bank publishes a schedules of such fees and charges on the Bank’s website from time to time. In addition, the Bank also may assess fees to cover the cost of any CVR performed by, or on behalf of, the Bank and all expenses incurred in connection with lien perfection.

The Bank may charge a borrower for the Bank’s outside legal counsel fees, costs and expenses when the Bank assists the borrower with a transaction that primarily benefits that borrower. Such transactions include, but are not limited to, the following: affiliate pledge arrangements, intercreditor agreements, subordination agreements, letters of credit (including issuance,

Credit and Collateral Policy

amendment, transfer and cancellation), custody arrangements, mergers and assumptions of borrower obligations, and transactions that require or potentially require involvement on the part of the Finance Board, such as new business activity requests, regulatory interpretations, waivers or other action. The Bank, in its sole discretion, shall determine whether the services of outside counsel are required with respect to a particular transaction. The amount charged to the borrower shall be based on actual outside counsel legal fees, costs and expenses related to the matter. The borrower shall be responsible for such charges regardless of whether the transaction ultimately is concluded.

GUIDELINES TO PROMOTE RESPONSIBLE LENDING

The Bank requires that all Residential First Mortgage Collateral, Home Equity Lines of Credit (HELOC) and Second Mortgage Collateral, as well as securities backed by Residential First Mortgage Collateral, HELOCs and Second Mortgage Collateral (“Residential Mortgage Collateral”) comply with applicable federal, state and local anti-predatory lending laws and other similar credit-related consumer protection laws, regulations and orders designed to prevent or regulate abusive and deceptive lending practices and loan terms (collectively, Anti-Predatory Lending Laws). For example, Anti-Predatory Lending Laws may prohibit or limit certain practices and characteristics, including, but not limited to, the following:

• Requiring the borrower to obtain prepaid, single-premium credit life, credit disability, credit unemployment, or other similar credit insurance;

• Requiring mandatory arbitration provisions with respect to dispute resolution in the loan documents; or

• Charging prepayment penalties for the payoff of the loan beyond the early years of such loan.

Any Residential Mortgage Collateral that does not comply with all applicable Anti-Predatory Lending Laws will not constitute Qualifying Collateral. In addition, any Residential Mortgage Collateral that exceeds the annual percentage rate or points and fees thresholds of the Home Ownership and Equity Protection Act of 1994 and its implementing regulations (Federal Reserve Board Regulation Z) will not constitute Qualifying Collateral.

Each pledgor is responsible for avoiding all unlawful practices and terms prohibited by applicable Anti-Predatory Lending Laws, regardless of whether the pledgor originates or purchases the Residential Mortgage Collateral pledged to the Bank. The Bank will take those steps it deems reasonably necessary in order to confirm or monitor a pledgor’s compliance with this policy. In addition, the Bank reserves the right to require evidence reasonably satisfactory to the Bank that Residential Mortgage Collateral does not violate applicable Anti-Predatory Lending Laws. With respect to Residential Mortgage Collateral purchased by the pledgor, the pledgor is responsible for conducting due diligence that it deems sufficient to support its obligations to the Bank.

Under the terms and conditions of the Advances and Security Agreement, each pledgor has agreed that it will: (1) comply at all times with the Bank’s Credit and Collateral Policy, including these Guidelines; (2) comply at all times with the requirements of all applicable Anti-Predatory Lending

Credit and Collateral Policy

Laws; (3) maintain Qualifying Collateral with an LCV at least equal to the Collateral Maintenance Level required by the Bank, and will substitute Qualifying Collateral, if necessary, for any Residential Mortgage Collateral that does not comply with these Guidelines; and (4) indemnify, defend and hold the Bank harmless from and against any liability, loss, cost or expense (including reasonable attorneys’ fees and expenses) that result from such pledgor’s violation of these Guidelines.

The Bank will not knowingly accept as Qualifying Collateral Residential Mortgage Collateral that violates applicable Anti-Predatory Lending Laws or these Guidelines. If the Bank knows or discovers that such Residential Mortgage Collateral violates applicable Anti-Predatory Lending Laws or these Guidelines, the Bank may, in addition to all available rights and remedies it has at law or in equity, (1) require the pledgor to substitute Qualifying Collateral for such Residential Mortgage Collateral; (2) assign an LCV of zero to such Residential Mortgage Collateral; and (3) require the pledgor to undertake a review of its policies, practices, and procedures for complying with the Bank’s Credit and Collateral Policy, practices and procedures.

CREDIT AND COLLATERAL POLICY FOR HOUSING ASSOCIATES

The Bank has established a specific credit and collateral policy for housing associates that qualify as State Housing Finance Agencies (SHFAs). Through this policy, the Bank provides a range of credit products to qualified SHFAs. To the extent there is a conflict between this section of the Credit and Collateral Policy and any other section of the Credit and Collateral Policy, as applied to housing associates, this section shall prevail.

The Bank shall grant advances to a housing associate qualifying as an SHFA in accordance with the Act, the Regulations, and the Credit and Collateral Policy currently in place for members.

An SHFA must be prequalified, prior to the funding of an advance request, to determine suitability with respect to the Bank’s credit standards.

The Bank reserves the right to request financial information with each application. Additionally, the Bank reserves the right to request that the SHFA submit financial data on a quarterly basis during the term of the outstanding advance or advances.

The Bank generally shall determine an SHFA’s borrowing capacity based on the SHFA’s overall financial and operating condition and the adequacy of the pledged collateral. Total borrowings (and other Liabilities) may not exceed the lendable value of the pledged collateral.

As with all credit decisions, the Bank, in its sole discretion, reserves the right to decline a request for credit from an SHFA that does not meet the Bank’s underwriting or collateral standards.

Types of Credit Products: Generally, an SHFA shall have access to the credit products available to a member, except for any affordable housing, community investment, or economic development program that the Bank may offer only to its members. The Bank may issue a standby letter of credit on behalf of an SHFA for the purpose of residential or economic development lending that benefits individuals or families meeting specific income requirements.

Credit and Collateral Policy

Use of Funds: An advance to an SHFA shall be for the purpose of facilitating residential mortgage lending that benefits individuals or families meeting the income requirements in section 142(d) or 143(f) of the Internal Revenue Code (26 U.S.C. 142(d) or 143(f)).

Maturities: Terms to maturity shall be consistent with those imposed by the particular credit product. However, terms to maturity shall not exceed the terms of the loan(s) to be funded.

Pricing: Pricing and prepayment fees shall be the same as those applicable to member borrowings.

Collateral Requirements: The SHFA must deliver to the Bank or its designated custodian sufficient eligible collateral to secure its advances (and other Liabilities). The Bank shall accept as collateral the following types of mortgages and securities owned by the SHFA free and clear of any liens, encumbrances, and other interest (at the respective Lendable Collateral Values shown, as determined by the Bank):

• First Residential First Mortgage Collateral (85 percent of market value)

• Multifamily Mortgage Collateral (50 percent of the unpaid principal balance)

• Private Label Mortgage-Backed Securities (90 percent of market value)

• HELOC/Second Mortgage-Backed Securities (90 percent of market value)

• Government and agency securities (97 percent of market value)

• Deposits at the Bank (100 percent of deposit amount)

Miscellaneous: The SHFA must inform the Bank of any material change in financial condition or any change in its status as an SHFA. An SHFA is not required to purchase capital stock in the Bank to secure outstanding advances.

WAIVERS AND EXCEPTIONS

The Bank may, in its sole discretion, waive or otherwise grant exceptions to some or all of the requirements of the Credit and Collateral Policy. Any such waiver or exception shall be approved as provided in the Credit and Collateral Policy, or by the Bank’s internal credit and collateral committee or the Bank’s Board of Directors, as may be required by Bank policy.

REGULATORY COMPLIANCE

The Bank will not honor prior advance commitments if the borrower’s access to Bank advances is subsequently restricted pursuant to the Act or the Regulations and guidelines of the Finance Board.

Credit and Collateral Policy

ADVANCE FUNDING AND REPAYMENTS

The Bank shall fund advances at such times on the funding date as the Bank shall determine from time to time, and the Bank shall require repayments of advances at such times on the maturity date as the Bank shall determine from time to time.

EX-31.1

EXHIBIT 31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Raymond R. Christman, certify that:

1. I have reviewed this quarterly report on Form 10-Q of the Federal Home Loan Bank of Atlanta;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2006	/s/ Raymond R. Christman
	Raymond R. Christman
	President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Dan Counce, certify that:

1. I have reviewed this quarterly report on Form 10-Q of the Federal Home Loan Bank of Atlanta;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2006	/s/ Dan Counce
	Dan Counce
	First Vice President and Controller

EX-31.3

EXHIBIT 31.3

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Annette Hunter, certify that:

1. I have reviewed this quarterly report on Form 10-Q of the Federal Home Loan Bank of Atlanta;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2006	/s/ Annette Hunter
	Annette Hunter
	First Vice President and Director of Accounting Operations

EX-32.1

EXHIBIT 32.1

Certification Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of the Federal Home Loan Bank of Atlanta (the “Registrant”) for the period ended September 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Raymond R. Christman, President and Chief Executive Officer of the Bank, Dan Counce, First Vice President and Controller of the Bank, and Annette Hunter, First Vice President and Director of Accounting Operations of the Bank, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his or her knowledge:

1. The Registrant’s Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date: November 14, 2006

/s/ Raymond R. Christman

Raymond R. Christman

President and Chief Executive Officer

/s/ Dan Counce

Dan Counce

First Vice President and Controller

/s/ Annette Hunter

Annette Hunter

First Vice President and

Director of Accounting Operations

The foregoing certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934.